cross posted from Be careful what you “fix for”! A Holiday Gift: What to do about the unfiled #FBAR
UPDATED WEDNESDAY JANUARY 4, 2017
Part 6 – Getting help with “fixing your compliance problem”:
“The smaller the step taken, the bigger the result”
Some tax professionals:
- believe that compliance problems should presumptively be solved ONLY through prescribed IRS procedures including: “Streamlined (domestic or offshore)”,”OVDP”
“Delinquent information returns” and; “Delinquent FBAR submission procedures”; AND THEREFORE
- rightly or wrongly (and it depends on the facts) find it difficult to deal with the Title 31 FBAR problem without considering one or more Title 26 tax problems.
In many cases they will frame the issue as:
Should you use OVDP (the answer is almost always NO) or should you use Streamlined (the answer is usually maybe). But, to use either OVDP or Streamlined is to NOT solve the Title 31 FBAR problem without compounding the number of problems (by introducing Title 26 tax issues). Are you eligible to use the “Delinquent FBAR submission procedures?”
The threshold consideration is whether all income associated with the “foreign accounts”, that should have been reported on the tax returns was properly reported.
OVDP and Streamlined ALWAYS assume more than one problem …
Since OVDP and Streamlined deny the possibility of solving the Title 31 FBAR problem on its own, some advisers escalate one simple Title 31 FBAR problem into several problems.
OVDP, Streamlined the “Delinquent FBAR Filing Procedures” are NOT not found in either the Internal Revenue Code (Title 26) or the Bank Secrecy At (Title 31). Therefore, they are NOT the law and are NOT legally required. They may or may not be advisable courses of action.
(This is where your adviser can assist you in making a rational decision.)
Obeying the law (“doing the right thing”) requires two things.
1. File FBARs (Title 31)
2. File your tax returns (Title 26)
What could be wrong with fixing “compliance problems” by “obeying the law”?
Isn’t to “obey the law”, to “do the right thing”?
There are people who fix their “compliance problems” by simply “filing their tax returns and/or amended tax returns” without using OVDP or Streamlined. In do doing, they are simply “obeying the law”. You will find many “internet warnings” against filing tax returns outside of the OVDP or Streamlined (“quiet disclosures“). Are these warnings justified?
Is it really “the wrong thing” to try to “do the right thing”
(obey the law)?
The answer depends on the facts. I will address the question of “quiet disclosures” in a separate post.
“The total weight of problems is equal to the square of the number of problems!”
You will compound your problems by allowing your problems to escalate.
That’s how the two people described above, who started with one simple problem, found themselves in the messes they are in today.
Conclusion: consider whether you can deal with minor/unintentional FBAR violations as a “stand alone single problem”.
There may be no need to escalate that one single problem into a multi-dimensional full blown tax problem!
Remember: In most cases, “the smaller the step taken, the bigger the result for you!”