A taxpayer who has failed to file a FBAR to report a foreign account over which the taxpayer has signatory authority but no beneficial interest (e.g. an account owned by his employers), that foreign account will not be included in the asset base for calculating the taxpayer’s 27.5% offshore penalty. The account that the taxpayer has more signatory authority over will be treated as unrelated to the tax non-compliance the taxpayer is voluntarily disclosing.
The taxpayer may cure the FBAR delinquency for the account the taxpayer does not own by filing the FBAR with an explanatory statement before being contacted regarding an income tax examination or a request for delinquent returns.
In certain cases, if the taxpayer is determined to have a direct or indirect beneficial interest in the account(s), the taxpayer will be liable for the 27.5% offshore penalty if there is unreported income on the account, including:
1. The account over which the taxpayer has signatory authority is held in the name of a related person, such as a family member or a corporation controlled by the taxpayer;
2. The account is held in the name of a foreign corporation or trust for which the taxpayer had a Title 26 reporting obligation;
3. The account was related in some other way to the taxpayer’s tax non-compliance.
If there is no unreported income with respect to the account, no penalty will be imposed.
For parents with a jointly owned foreign account on which they have made their children signatories, the children have a FBAR filing requirement but no income. The children should file any delinquent FBARs with an attached statement explaining why the reports are filed late.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and the taxpayer has not previously been contacted regarding an income tax examination or a request for delinquent tax return.
Regarding the parents, they will be jointly required to pay a single 27.5% penalty on the account.
If there are multiple individuals with signatory authority over a trust account, only one 27.5% offshore penalty will be applied with respect to a voluntary disclosure tied to the same account. The penalty may be allocated among the taxpayers with beneficial ownership making the voluntary disclosures in any way they choose. However, every individual who is required to file a FBAR must file one.
For a taxpayer with two offshore accounts and no FBAR filed, and income reported from one account but not the other, because the annual FBAR requirement is to file a single report reporting all foreign accounts meeting the reporting requirement, it is not possible to bifurcate the corrected filing. The taxpayer should make a voluntary disclosure for the omitted income and include the delinquent FBARs with respect to both accounts. The account with no income tax issue is unrelated to the taxpayer’s tax non-compliance, so no penalty will be imposed with respect to that account.