IRS Issues New Examiner FBAR Penalty Guidance

The IRS issued new examiner FBAR penalty guidance (SBSE-04-0515-0025) effective 5/13/15 for all FBAR cases (Fincen Form 114) open as of that date.

Most importantly, the examiner is allowed to increase the maximum penalty from 50% to 100% of the offshore account balance (plus interest). Effectively, with the penalty (and interest) on the unreported account balance, and the income tax on the unreported earnings (on the assets held in the account), which may be be increased for additional penalties (e.g. fraud 75% of the tax due), plus interest, not only can the entire account balance be “wiped out” but the excess tax, penalty and interest (computed on the account balance and the earnings from the account) means the taxpayer will owe the IRS more than the account held.

Taxpayers in this predicament may wish to consider objecting to the IRS penalties as excessive fines/penalties under the 8th Amendment to the Constitution (Bill of Rights) and request an appeal review of the examiner findings based on the “unconstitutional” excessive fines imposed.

For complete Memorandum from IRS please click link above.

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