The United States National Taxpayer Advocate Nina Olson has released her Annual Report for 2014 and, in Legislative Recommendation #6, advocates reducing the burden of filing a report of Foreign Bank and Financial Accounts (FBAR) and improving the corresponding civil penalty structure. She refers directly to the “unintended consequence of the civil FBAR penalty regime, which is designed to address criminal conduct”.
As Ms Olson points out, the penalty for willful failure to file an FBAR was originally aimed at criminals but those it most seriously affects today are what she refers to as “benign actors”.
Her four specific proposals for correcting the situation (page 333) are to:
- Improve the proportionality of the civil FBAR penalty;
- Require the government to prove actual willfulness before imposing the penal violations;
- Treat taxpayers who correct violations early the same as (or better than) those who correct them later; and
- Reduce the burden of foreign account reporting.
We are gratified to see that certain of her recommendations address problems that AARO and its partner organizations have often deplored when speaking to government officials.
Specifically, as we have all advocated, she would (page 338) “Eliminate or waive the civil penalty for failure to report an account on an FBAR if there is no evidence the account was used in connection with a crime and:
a. The account information was already provided to the IRS, for example, on a Form 8938, Statement of Specified Foreign Financial Assets, or by a third party (e.g., a financial institution);
b. The amount of unreported income from the account does not create a substantial under-statement under IRC §6662(d); or
c. The taxpayer resides in the same jurisdiction as the account.
(Note that this last recommendation coincides with the “same country exception / safe harbor” advocated by AARO, FAWCO, ACA and Democrats Abroad.)
In addition, for delinquent filers, she clearly places the “proof” burden on the IRS and calls (page 340) for “legislation to clarify that the government has the burden to establish actual willfulness (i.e., specific intent to violate a known legal duty, rather than mere negligence or recklessness) before asserting a willful FBAR penalty, and (that it) cannot meet this burden by relying solely on circumstantial evidence.”
Finally, referring directly to recommendations made by FAWCO, AARO and ACA in 2012, she advocates (page 343) reducing the filing burden by raising the FBAR reporting threshold to $50,000 and (page 344) aligning the FBAR and Form 8938 thresholds and deadlines.
We are fortunate to have an ally in the National Taxpayer Advocate (who received an AARO Award in 2014 for her defense of "fair tax treatment of the global American community”). Letters to your legislators in support of her recommendations could bring her report to their attention and support our longstanding positions!
Write to your legislators and send them the URL for her full Legislative Recommendation #6…
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