FBAR Quirks

Anyone participating in an IRS OVDI program ought to be aware of the following:

The FBAR filing requirements are part of the Bank Secrecy Act (United States Code, Title 31) rather than the Internal Revenue Code (United States Code, Title 26), and the FBAR regime itself contains traps for the unwary, even those who are tax law experts. There is a new electronic filing regime [in 2014 and years following, but effective for all OVDI filings], which replaces manual filing. The new BSA E-Filing System supports electronic filing of Bank Secrecy Act (BSA) forms - FinCen Form 114, not the old TD 90 f 22.1 - either individually or in batches through a FinCEN secure network. BSA E-Filing provides a faster, more convenient, more secure, and more cost-effective method for submitting BSA forms. Additional benefits are listed under Using BSA E-Filing.

How does BSA E-Filing work?

The BSA E-Filing System is hosted on a secure website accessible on the Internet [http://bsaefiling.fincen.treas.gov/main.html]. Organizations that file BSA forms with FinCEN can securely access the system after they apply for and receive a user ID and password from FinCEN.

The new form due date is still June 30, as with the old FBAR, which date is out of sync with the normal tax filing deadlines of April 15th, or October 15 for those on extension. It is doubtful that proprietary tax programs will have the capability to incorporate this new regime filing protocol into the Form 1040 preparation programs.

A taxpayer assessed the FBAR penalty cannot challenge the assessment in a Petition to the United States Tax Court, where the tax, penalties and interest needn't be paid in advance for a suit to be entertained. A suit to set aside the FBAR penalty is in the nature of a suit for refund against the United States, and the tax must be full paid as a condition of jurisdiction [in a United States District Court or the Court of Federal Claims].

Another trap, equally if not more distressing, is that FBAR penalties are not dischargeable in bankruptcy. These little-known traps were highlighted in two recent cases, Williams v. Commissioner and United States v. Simonelli.

This office handles OVDI initiative cases in the normal course.

Williams v. Commissioner, 131 T.C 6 (2008)(FBAR dispute not within jurisdiction of Tax Court).

United States v. Simonelli, 614 F.Supp. 2nd 241 (D. Conn. 2008)(No discharge in Bankruptcy for FBAR Penalty)