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Foreign Financial Assets, FBARs and Streamlined Filings: What Maryland Taxpayers Need to Know

Hot Topics, Offshore Account Update

Posted in on October 29, 2021

For taxpayers who own offshore bank accounts and other foreign financial assets, filing a Report of Foreign Bank and Financial Accounts (FBAR) is an important part of federal tax compliance. Taxpayers whose accounts exceed the statutory thresholds must file FBARs on an annual basis, and failure to do so can lead to steep penalties. So, what if you haven’t met your FBAR filing obligations? Maryland international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group explains:

When Might a Taxpayer Need to Make a Streamlined Filing?

When U.S. taxpayers fail to file FBARs as required, one of the primary options they have available is to make a “streamlined filing.” The Internal Revenue Service (IRS) has implemented streamlined filing compliance procedures that are designed specifically to allow taxpayers to come into FBAR compliance.

There are several requirements for submitting a streamlined filing, one of which is “non-willfulness.” When submitting streamlined filings to the IRS, taxpayers must certify (under penalty of perjury) that their past filing deficiencies were not willful. This means that the deficiencies must have resulted from “negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”

When Isn’t a Streamlined Filing Necessary?

Submitting a streamlined filing does not allow taxpayers to avoid penalties entirely, but it does provide protection against the risks of facing an IRS audit or criminal investigation. As a result, submitting a streamlined filing will be taxpayers’ best option for rectifying FBAR deficiencies in most cases.

However, in limited circumstances, it is possible for taxpayers to completely avoid penalties for delinquent FBARs. As the IRS explains, it “will not penalize those who properly reported a foreign account on a late-filed FBAR if the IRS determines there was reasonable cause for late filing.” Whether a taxpayer’s failure to file is due to “reasonable cause” rather than “non-willfulness” is determined according to federal regulations.

What If You Cannot Certify to “Non-Willfulness”?

What if you cannot make the required “non-willfulness” certification for submitting a streamlined filing? In this scenario, you may need to utilize IRS Criminal Investigation’s Voluntary Disclosure Practice. Willful tax law violations can lead to criminal prosecution, and making a voluntary disclosure “may result in prosecution not being recommended.”

Deciding whether to submit a streamlined filing, a statement of reasonable cause or a voluntary disclosure requires a careful and strategic assessment of a taxpayer’s individual circumstances. Making the wrong choice can trigger an audit or investigation—and this can potentially lead to severe consequences. Prior to making any decisions, taxpayers who are behind on their FBAR filing obligations should discuss their options with an experienced Maryland international tax attorney.

Schedule a Consultation with Maryland International Tax Attorney Kevin E. Thorn

Are you behind on your FBAR filing obligations? If so, we can help. To schedule a consultation with Maryland international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 240-235-5096, email ket@thornlawgroup.com or contact us confidentially online today.

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