The Internal Revenue Service has released interim guidance (SBSE-04-0515-0025) on foreign bank account report (FBAR) penalties to improve the administration of the FBAR compliance program. The guidance contains amendments to the Internal Revenue Manual (IRM), effective immediately, and applies to all open cases in which the FBAR penalties are at issue. Examiners are required to implement these new procedures to help ensure consistent, effective and fair administration of the penalties. A Civil FBAR Penalty Case File Checklist is also included to further establish consistency in FBAR case file information.
The IRS has the burden of showing that a FBAR violation occurred and, for willful violations, that the violation was in fact willful. Because the FBAR penalty provision only provides maximum penalty amounts, the IRS is tasked with determining the appropriate FBAR penalty amount on a case-by-case basis, taking into consideration the particular underlying facts and circumstances. A nonwillful penalty won’t be recommended if the IRS determines that the FBAR violations were due to reasonable cause and the person later files correct and complete FBARs. Co-owners of an unreported foreign financial account don’t necessarily have to be held jointly liable. Separate determinations must be made with respect to each co-owner as to whether there was a violation. Examiners must coordinate with a Fraud Technical Advisor when they have reason to believe that a certain case may warrant a criminal referral in addition to the civil penalties. Another notable change is that Counsel review is no longer required except in cases in which willful penalties have been determined. The interim guidance will be incorporated into IRM 4.26.16, Report of Foreign Bank and Financial Accounts (FBAR), and IRM 4.26.17, Report of Foreign Bank and Financial Accounts (FBAR) Procedures, no later than one year from the date of issuance.