Under the 2009 and 2011 federal voluntary disclosure programs, the penalties for failing to timely file Foreign Bank Account Reports, (FBAR’s) and the penalties for failure to file information returns (such as Controlled Foreign Corporation tax returns) were combined into a single miscellaneous civil penalty. The penalty which varied depending on whether it was under the 2009 program or the 2011 program combined the FBAR penalty which is established under the Bank Secrecy Act (BSA) with penalties assessed under the Internal Revenue Code (Code) and the combined penalty is assessed under the Code. This is combination to be administered under the Code avoids the requirement that the FBAR be brought as a civil case in the United States District Court, rather than under the assessment provision of the Code.
The IRS in its FBAR Frequently Ask Questions (No.51 ) discusses the basis upon which a taxpyaer might “opt out of the offshore voluntary disclosure program. The IRS uses the term “reasonable cause” in defining whether a taxpayer’s conduct is willful or non-willful. Because of the integration of BSA and Code penalties the participants in either the 2009 or 2011 offshore voluntary disclosure programs the tax cases that define reasonable cause may be the basis for determining whether it makes sense for taxpayers to “opt out” of the an offshore voluntary disclosure program when faced with failure to file Information Returns as well as failing to file FBAR’s.
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