FBAR Willful Failure to File Post August 31, 2011

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On August 31, 2011 the opportunity for taxpayers to enter the Second Supplemental Offshore Voluntary Disclosure Program (OVDI) offered by the IRS ends, absent specific individually granted extensions. What does that mean for taxpayers who have not yet applied to enter the OVDI program? Does it mean that their failure to act by August 31, 2011 now makes their conduct “willful” and if so what does that mean? Frequently Asked Question 5 published by the IRS may provide some insight.

FAQ 5 states: “A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”). United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.”

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