2017 marks the first tax filing season where FBARs are due on April 15th. The impending FBAR deadline is triggering a lot of questions from our clients, and rightly so.
Will filing my FBAR trigger red flags for an audit?
"If I file the FBAR now, it will be my first time to ever report it. I’m afraid that it may raise a red flag and increase my chance of being audited. I feel like it’s a bad idea to report it now before I start the streamlined process. How is filing it now helping me instead of putting me at risk? "
If you're asking this question, that means that right now, you 100% know about the FBAR filing requirement. If you do not file an FBAR now, the IRS could later say you willfully did not file an FBAR. Willful is bad. Remember, there is no "late FBAR penalty". There is only non-filing penalties, and the IRS can assess you those non-filing penalties if you file even one day late.
Audit chances sparked by FBAR filing
Our experience has been that the IRS doesn't look at FBARs as a primary determiner of whether or not to audit someone. Rather, the IRS will look to see if someone already under audit has an FBAR requirement, and then check to see if that FBAR requirement was fulfilled or not.
What happens to your FBAR when you do file it? We can best liken it to Indiana Jones and the Raiders of the Lost Ark. Indiana put his life on the line to get the Ark. Of course, in the end, Indiana gets the Ark! Success! Amazing! It's the Ark! We got it!
But do you remember where they then store the Ark? In a dusty, old, government warehouse. Packed away in a box. That's sort of what happens to the FBAR you file. There isn't a human being reviewing every single FBAR that's filed and investigating whether that taxpayer has filed in the past.
If they need to reference the FBAR in the future, they can. Who's "they"? It's FinCEN (The Financial Crimes Enforcement Network), not the IRS. FinCEN and the IRS are two different departments, with two different databases. Apparently they don't share information between the two agencies so well. We know this because IRS auditors of our clients often ask us to get copies of the clients' FBAR for their review. They say that trying to get them from FinCEN is "too much of a pain".
"What's the disadvantage of filing FBAR altogether for the past 6 years through the streamlined process past the filing deadline?"
Filing your FBAR after the filing deadline could make you ineligible for the streamlined program as there is at least one year in which you were willful in your non-filing.
Ultimately red flag or no red flags, you best possible protection is to file your FBAR on time. If you are concerned about your FBAR reporting requirements, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
