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How to Appeal an FBAR Penalty

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If you cannot come to an agreement in resolving the issue in the IRS examination stage, you still have a right to take your case to Appeals. As mentioned above however, it may currently be in your best interest to work with the IRS agent and not depend on the case to go your way in Appeals.

Key Takeaways

  • If you cannot come to an agreement in resolving the issue in the IRS examination stage, you still have a right to take your case to Appeals.
  • The restructuring of IRS Appeals paired with budget cuts have undercut the traditional functionality of the Appeals Division.
  • There are two ways for a case to go forward from the examination stage to appeals — pre-assessment or post-assessment. As mentioned previously, there is no interest that accrues on the FBAR penalty until the penalty is assessed.

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FBAR Penalties: What Happens If You Don’t File International Taxes

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An area of difficulty that has arisen with regard to FBAR cases is the ambiguity of penalties potentially faced by an individual in violation of disclosure requirements.

Key Takeaways

  • An area of difficulty that has arisen with regard to FBAR cases is the ambiguity of penalties potentially faced by an individual in violation of disclosure requirements.
  • Willfulness is defined as “a voluntary, intentional violation of a known legal duty.
  • In most cases, the total penalty amount for all years under examination will be limited to 50 percent of the highest aggregate balance of all unpaid foreign financial accounts during the years under examination.

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Types of International Tax Forms

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There are many informational forms associated with international taxes and I am not sugar-coating this — they are complicated. To add to the angst, failure to file these forms or not file them on time can incur hefty penalties. In a later chapter, we will discuss the various compliance programs you may be eligible to participate in. I like to lay out all of the scenarios regarding penalties to my clients up front, so they know what we are potentially dealing with.

Key Takeaways

  • There are many informational forms associated with international taxes and I am not sugar-coating this — they are complicated. To add to the angst, failure to file these forms or not file them on time can incur hefty penalties.
  • To get started, we will focus first on the very basics — your Federal tax form — whichever version of Form 1040 that you are required to file.
  • Individuals who meet the requirements set out by the Internal Revenue Service are required to file income tax returns on a yearly basis. This requirement is completed by filing a 1040 or a 1040A.

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What Is the Foreign Bank Account Reporting

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The acronym FBAR stands for Foreign Bank Account Report and refers to a disclosure form that must be filled out by certain taxpayers with respect to financial accounts maintained abroad. Although this is often a concern for the millions of expatriates living and working in foreign countries, FBAR applies to an even broader demographic of taxpayers.

Key Takeaways

  • Although the FBAR is important, there are also separate information forms that individuals with an international presence should also be aware of for Federal Income tax purposes.
  • If you have already received a notice, it is best to seek experienced counsel to guide you in your efforts to be forthcoming.
  • The full range of approaches may no longer exist once an audit is opened and the path to a resolution may become considerably more difficult.

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Frequently Asked Questions About IRS Collections and Taxes

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In my years of representing clients before the IRS, I have been asked some common questions about the IRS, filing taxes and collections. The following is a compilation of my responses to some of the questions I hear the most from my clients. I hope that this Q&A section answers some of the questions that you may have. As always, if you have additional questions, please feel free to call me and I will do my best to answer them for you.

Key Takeaways

  • In my years of representing clients before the IRS, I have been asked some common questions about the IRS, filing taxes and collections. The following is a compilation of my responses to some of the questions I hear the most from my clients.
  • The first thing to do when you have not filed taxes is to get them filed so you know how much you owe the government and can begin fixing the problem. You need to establish your filing compliance as soon as possible.
  • In some cases, we have had situations where clients honestly do not remember what years they have and have not filed for.

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What Is the FAST Act?

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Key Takeaways

  • If you owe the IRS $50,000 or more in back taxes, it is better to be proactive, then try to travel abroad or renew your passport and find out that you cannot.
  •  
    What the Law Says: FAST Act Provisions Governing Passports
    Title XXXII, Subtitle A, Section 32101 of the FAST Act gives the IRS the power to deny or revoke passports for taxpayers who have a “serious tax liability” of $50,000 by issuing notice to the Secretary of State’s office.
  • At the IRS level, carve-outs exist as well.

The IRS means business when it comes to recouping what is owed to them. Their latest strategy is implementation of the FAST Act. Simply put, if you owe more than $50,000 to the IRS, the IRS can seize your passport, thus prohibiting your ability to travel outside the U.S. This can be particularly problematic if you frequently travel overseas or have a residence in another country.

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Innocent Spouse Relief

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Key Takeaways

  • This is a concept in the law known as joint and several liability, meaning that the spouses are responsible for any tax liabilities together (jointly) but can be held responsible for them as individuals (severally).
  • This is why when a married couple signs their tax return, both parties are attesting to the accuracy of the tax that is owed.
  • The rationale behind this is that it would be unfair to limit the collection rights of the IRS by virtue of an agreement that it was not a party to.

The Theory of Innocent Spouse Relief

Because of certain benefits that filing jointly allows, many married taxpayers elect to file joint returns. However, filing a joint return carries the added burden of both parties being liable for the tax due. In addition, under the IRS code, married taxpayers who file jointly are each liable for any additions to the tax, penalties, or interest associated with the account.[1]

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How to File an IRS Interest Abatement

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A common complaint I receive from many of my clients is that their IRS liability has increased substantially due to the penalties and interest that have been tacked on to the account (most of these clients are considering submitting an IRS penalty abatement).

Key Takeaways

  • A common complaint I receive from many of my clients is that their IRS liability has increased substantially due to the penalties and interest that have been tacked on to the account (most of these clients are considering submitting an IRS penalty abatement).
  • It does not seem fair, but not everything in life is fair, and it seems x1,000 when dealing with the IRS. If it helps, you can think of the IRS as just another business.
  • The IRS has a different structure with assessing interest and how much you pay depends on the amount due, how many years you are behind and the circumstances surrounding your delinquency.

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What if I Cannot Pay the IRS? Currently Non-Collectible Status

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Key Takeaways

  • While the taxpayer is in not collectible status, the 10-year statute of limitations still applies within this context.
  • Taxpayers whose assets cannot be found are more likely to receive consideration for CNC.
  • Taxpayers must provide an outline of “allowable monthly expenses (expenses related to life, health, welfare, or the production of income)” (Hein).

When slapped with a staggering tax bill, very few people have the luxury of being able to pay the amount due in full. If that is you and you have exhausted all other repayment options, you might consider opting for Currently Non-Collectible Status (CNC). While this option is not for everybody, it can stall the collection process until you can come up with a solution to pay what you owe. We understand the frustration and embarrassment of being in this position and we can help. Keep reading to learn if you are eligible and if you have questions, feel free to give us a call.

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What Are the Rules for an IRS Offer in Compromise

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An Offer in Compromise (OIC) is one repayment plan that you can negotiate with the IRS to reduce your tax debt. With an OIC, you are proposing paying a lesser amount to the IRS, based on your ability to pay. This is a good strategy, but bear in mind, that it is not an easy or comfortable process.

Key Takeaways

  • Salability of Assets
  • Current Assets: Cash and Cash Equivalents
  • Monthly Cash Flow
  • Income and Expense Table and Future Income
  • Future Income Potential

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Brotman Law Featured in Inc. Magazine - Fastest Growing Law Firm in California