The IRS Provides Welcome Guidance on FBAR Penalties

What to Expect in an Examination Becomes Clearer for Taxpayers

Megan L. Brackney, JD, LLM

The IRS has broad statutory discretion to impose penalties for both willful and nonwillful failures to report foreign financial accounts. This discretion has made it difficult to predict the likely outcome of an examination or an opt-out from the IRS's Offshore Voluntary Disclosure Program (OVDP). On May 13, 2015, the IRS's Small Business/Self-Employed Division issued “Interim Guidance for Report of Foreign Bank and Financial Accounts (FBAR) Penalties” (SBSE-04-0515-0025). The interim guidance will become part of the Internal Revenue Manual (IRM) provisions relating to FBAR penalties and procedures of IRM 4.26.16 and IRM 4.26.17 by July 1, 2016, but it is effective immediately and applies to all open cases. It contains guidance for assessing willful and nonwillful FBAR penalties, as well as the internal procedures that examiners should follow in FBAR cases.