foreign account reporting due today - question

[autobet]

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The penalties are huge for not filing, up to half a million and 10 years in jail. It is much better to file, perhaps the huge increase in FBAR filings will reduce the audit rate.

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They may also focus on those who have not filed, since they have the Neteller records. If we are lucky they will check off most of those who have filed, and dig through the records for those who have not.

[depokerstar]

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If I knew that filing this form was so likely to lead to an audit, I wouldn't have filed. I pay all my taxes so being audited will be an unnecessary giant pain in the ass.

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For any tax year prior to 2006, I agree. No telling how meticulous our Neteller records are being picked apart. I'd much rather run the risk of an audit, since I've paid all taxes, than face fines or penalties for not complying.

[mdouglass]

Is the audit rate really that high? I filed this form in 2005 (as well as 2006) and I haven't had anything happen to me. How likely is it that I will be audited considering so much time has passed?

[PokeReader]

The audit rate used to be 100%, however under the compliance initiatives and new penalties, it has dropped somewhat. How much more it will drop this year with the surge of FBAR's that will occur is anyone's guess. What I would generally tell you is the FBAR filers, (or people who are non-compliant FBAR filers) are considered the most significant tax evasion problem, and thus the number one audit priority for the IRS, period. If you are a FBAR filer, I would be prepared to be audited at any point, and by law you must maintain records relating to your FBAR's for five years.

[drtofu66]

Geez, what a pain. It would certainly suck to be audited, but the unpleasantries and fines they lay out for non-filers makes me feel better about filing, if only marginally so.

Quick follow-up question: I see that we're supposed to check off the box Part III on Schedule B in addition to filing the FBAR. I didn't even know about this form until last week and already filed my taxes without checking off this box. Is there any way that I can correct this? Do I need to?

[PokeReader]

Note: if you did note file your FBAR by the midnight deadline, and have not filed previous years, and did not check Schedule B, please read!

QUESTION: I read your article in the June 2005 issue of the Tax
Adviser (Reporting and Disclosing Foreign Financial Accounts) and
found it very informative. Thank you.

One question I had which I have had trouble finding a direct answer to
is whether or not the penalties (willful or non-willful) can be
imposed on late filings of the form. It is clear that they can be
imposed on failure to file the forms but the text in the AJCA
discusses violations, which I would think that filing past the due
date could be considered a violation. In practice my guess is that as
long as the form is filed before the IRS questions it then the
individual should be ok but I wanted to know your thoughts on this.
Do you know if the penalties can be imposed on late filings?

REPLY: I have not been able to find a clear answer to the question.
The instructions in the Form TD F 90-22.1 do not make any statement
about a late filing. It only refers to a failure to file. The most
recent copy of the form on the IRS web site is dated in 2000 and has
clearly not been revised to reflect the new penalty.

Your question relates to the new penalty of up to $10,000 for a non
willful violation of the financial account reporting requirement to
disclose any interest in or authority over a foreign financial
account. The effective date of the new penalty is that it applies to
violations occuring after the date of enactment of the AJCA -- which
was October 22, 2004. The Committee reports do not add any
clarification.

The reporting requirement applies to the aggregate value of all
foreign financial accounts for a calendar year. Thus, for 2004, such
accounts must be reported on or before June 30, 2005. The law is
silent with respect to the imposition of penalties on reports that are
filed late but the new penalty may be waived by the IRS if the
taxpayer can show a reasonable cause for the failure and if the income
from the foreign accounts has been reported.

It is not clear to me whether these penalties would now apply where a
taxpayer has failed to file the reports in prior years. However, I
believe that a failure to check the "Yes" box on Form 1040, Schedule
B, Part III regarding foreign accounts would constitute an incomplete
return if the taxpayer did have any foreign accounts to report. (A
similar question is on most other income tax forms such as the Form
1120.)

I will be informing any new clients who have failed to respond to the
question on a prior tax return and have failed to file the required
form TD F 90-22.1 that there is no assurance that the IRS would be
willing to waive the new penalty or that the new penalty might not
apply where such accounts have not been reported.

Prior to the passage of the AJCA, I filed a number of delinquent
reports of foreign financial accounts and my clients have not received
any notice of penalties from the IRS because the penalty required that
the failure to file the information was willful. The new penalty for a
non-willful failure to file will put taxpayers in the difficult
position of having to decide whether to file late returns and take a
chance on whether the penalty will be imposed or whether to gamble on
continued non reporting which could be subject to far greater
penalties.

Tax preparers can not advise clients in this regard because to do so
could be construed to be a conspiracy to evade taxes. A taxpayer who
has failed to file these reports in prior years and/or has not
responded to the question on their prior income tax returns regarding
foreign accounts may want to consult with a tax lawyer rather than a
tax accountant.

This puts taxpayers between a rock and a hard spot. If they ask any
tax preparer what to do, the tax preparer has to advise them to file
the required forms and take their chances on the generosity of the IRS
to not impose penalties for returns that were due before the change in
the law but that were filed after the change in the law.

If the IRS wants compliance more than they want to collect penalties,
then they should make it clear that they will not impose the penalty
on a late filing of returns that were due before the enactment of the
AJCA or they should offer an amnesty period for filing late.

Vern Jacobs

THE INFORMATION HEREIN DOES NOT CONSTITUTE A COVERED OPINION AND MAY
NOT BE USED TO AVOID POTENTIAL PENALTIES.
(CIRCULAR 230, SECTION SECTION 10.35(b)(4)(ii).

To summarize: you may be liable for the up to 100K penalties. Consult a tax attorney, not a CPA. Do not file yet. People, this is some serious crap. If people do not understand what I said about FBAR's not having Title 26 protections, let me make it clear.
1. You have very limited self incriminations rights if caught doing something wrong by the IRS.
2. This document can be shared. The police, the DOJ, your wife's divorce lawyer, it will not have normal privacy protections.
3. If you do not start FBAR filing cleaning on a given year where you file FBAR on time, pay all your taxes, check Schedule B, the penalites are ridiculously harsh, and they will be sure to give no mercy to internet poker players. If you have not done all this, TAX ATTORNEY, good one. Cheaper in the long run.

http://tax.aicpa.org/NR/rdonlyres/A0...2D/0/8_01a.doc

[autobet]

I have been wondering about this myself. You can always amend your return. Seems silly to amend your return to add a check box, but it is the thing to do if you want to be 100% compliant.

[PokeReader]

I do not like giving specific advice. However, this is equally part of the requirement. Generally, I would believe a taxpayer in this situation, given no other information, should amend their return. However, you should seek professional advice for your own situation.

[Poker CPA]

PokeReader:

The issue of "Constructive Receipt" is very misleading. For a properly filed Professional return, this is a non-issue, and in fact the current Netteller situation presents a excellent chance to delay income recognition until 2007 and maybe 2008.

[PokeReader]

I am not sure what you are discussing relating to constructive receipt/neteller/FBAR filings. Could you be more specific?