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FBAR Letters sent to taxpayers filing Amended or Past Due FBARS: Ignorance or IRS Abuse of Power?

February 14, 2013

On February 6, 2013 the Department of the Treasury, Internal Revenue Service, sent out blanket “form” letters to U.S. taxpayers who either filed amended Reports of Foreign Bank Accounts Form TDF 90-22.1 (FBARs) or filed reports that either were not filed when originally due or were uncertain if they had been filed as they did not have copies of files going back to year 2003. In many if not most of these situations the U.S. taxpayers had properly filed the regular income tax returns and reported their worldwide income and paid all income tax due. Click here to download a copy of this letter: IRS REJECTION LETTER

It should be noted that since 1913 it was standard operating procedure that all past due or amended returns of any type that were filed for years prior were to be filed on the forms that were applicable to the year in question. If such forms could not be obtained, it was acceptable to use a later version of the form and cross out the date and enter the year for which the return was being filed. This is confirmed by the IRS on their website entitled FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) - Filing Requirements which states that in FAQ #19 that the form was changed in 2008, however

“Q. For filing FBARs for prior years, should the current FBAR form be used or should the previous version of the form be used?

“A. The current FBAR form (revised in October 2008) may be used to report a financial interest in, or signature or other authority over, financial accounts that were maintained in years prior to 2008. However, since the changes to the current FBAR form reflect a change in the reporting requirements, the instructions for the prior version of the FBAR form (revised in July 2000) may be relied upon for the purpose of determining the filing requirements for properly reporting financial accounts maintained in calendar years prior to 2008.”

However the letter that was sent by The Financial Crimes Enforcement Network (FinCEN) that was recently sent to thousands of taxpayers (at taxpayer expense) states that EITHER the originally filed late or AMENDED FBARS for calendar years 2003 through 2007 cannot be processed as they MUST be filed using the most current version of the form and therefore the forms that were filed are being returned (as not being filed) and if the forms are not resubmitted within 20 days upon receipt of the letter that a Bank Secrecy Act (BSA) form may be issued resulting in fines or other (IE Criminal) penalties. The letter further states in bold letters “Do not check the Amended Box”, although many of these forms were filed as amended returns reporting things such as foreign employer pensions to which the U.S. taxpayer had a vested interest (to which the IRS FBAR instructions are silent as to whether or not they should be reported).

To summarize the above, the instructions state that a current form MAY (as has always been current operating procedure) but it does not state that the current form MUST be used. Yet the letter states that the forms that were properly filed were rejected and returned as unfiled because they were not filed on a current form for a previous year and if the form was not filed within 20 days a BSA form would be mailed subjecting the taxpayer to fines and possible criminal penalties.

As none of this made any sense I called the IRS today asking for the person listed as the contact person, BSA Tax Law Specialist Leslie A. Jefferson, ID#: 0259252 at (313)324-6146, Option 3 as per the letter. The person who answered the phone mumbled her name and did not provide her employee ID number as is standard operating procedure for all calls to the IRS. I was told that I need not speak with Leslie Jefferson but she would help me. My first question concerned the fact that although the taxpayer in question had filed all returns when due but was unaware and uncertain if a vested foreign employer pension was required they filed an Amended Return and therefore shouldn’t the taxpayer check off that it was an Amended Return? However the letter clearly stated that the Amended Return Box should not be checked. The person to whom I was speaking advised me to disregard that part of the letter if in fact the original form that was filed was an amended form; however she insisted that the forms must be filed again on the most recent form.

At that point I attempted to point out the discrepancies between the letter that the IRS is sending out and the instructions that state, not that a current form MUST be used, but rather that a current form MAY be used if the form for the year in question could not be obtained, during which the IRS employee would not permit me to discuss the issue and rather than ask for a reference or thank me for pointing out the discrepancy so they could research the matter, she then became extremely rude and indignant and insisted that I give her my name as though I were a criminal. At that point I thanked her for her help and hung up the phone.

In conclusion, if the IRS is sincere when they state that in situations where there does not exist any unreported income but merely want an FBAR filed which they state should be mailed to Michigan with a statement of reasonable cause (had the taxpayer not filed the original FBAR when it was due) and that these returns are not included under the OVDI. It is advisable to write in the letter or statement or on the form that this returns is filed subject to IRS FAQ#17 which alerts the IRS that it is filed as a mere attempt to comply with previously unknown reporting requirements.

This is certainly not a warm and fuzzy means of encouraging people to come forward and file. Obviously one individual is lacks the ability to assist the IRS in their efforts and to mitigate inconsistencies and problems and this matter needs to be addressed by a more powerful group such as the AICPA.

Thus I encourage anyone who has not filed to do so in order to aid the likelihood of onerous future penalties; however one needs to know that if filing a report for any year prior to 2008 that the current form, which can be downloaded from the BSA website, must be used in order to avoid problems with the IRS, and disregard the word MAY in the instructions and replace it with the word MUST.

There is one other problem that I need to point out. In the event that anyone filed an FBAR or other information report last year and who has since moved, it is important to contact the IRS and inform them of the change of address to avoid the possibility of having the computer generate a BSA letter with penalties should the letter not be responded to within 20 days even though it was due to a change of address or slow foreign mail delivery. Having been in this profession for more than 40 years, I have never seen anything the likes of this.

It is also of interest to read that in the IRS FAQ#17 that the IRS states that if a person has reported all of their foreign income and is merely filing a late FBAR, they should file outside the OVDP and mail directly to Detroit with no involvement of the BSA involvement.

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