When filing your tax returns for the year, you likely have an idea of the amount of money you may owe the Internal Revenue Service in taxes. However, a surprising number of taxpayers may be completely unprepared for the draconian FBAR penalties that can and will be assessed against them by the IRS where delinquent or omitted FBAR penalties are concerned especially if the omission is deemed to be willful which could additionally be criminally prosecuted. If you owe money to the IRS and you are concerned about your ability to pay FBAR penalties, you should contact our dually licensed California Tax Attorneys and CPAs to determine whether you qualify for an “Offer in Compromise.” The Tax Law Offices of David W. Klasing would like to outline the details of new IRS provisions that clarify the IRS stance on OIC’s involving FBAR penalties.
How an IRS Offer in Compromise Works
The IRS has several options at its disposal to deal with a taxpayer that cannot pay versus those that blatantly ignore or worse yet, actively evade making payment on their tax liability. However, in many cases, the IRS would like to work out a plan where the taxpayer could satisfy their debt without the need for opening a criminal evasion of payment investigation or confiscating and selling assets or other aggressive tax collection measures. Where a taxpayer honestly cannot afford to pay, has insufficient net worth and insufficient net income to at least maintain a standard of living near or at the poverty level, is where an IRS Offer in Compromise (OIC) program could benefit the taxpayer and the IRS who does not want to attempt to squeeze blood from a turnip.
An OIC is an arrangement with the IRS where a taxpayer pays off their compromised tax debt for less than the total amount of tax, penalties, and interest owed.
When determining who is eligible for an OIC, the IRS will examine these factors:
- The net income earned by the taxpayer.
- The Allowable expenses of the taxpayer.
- Assets the taxpayer owns / net worth.
- Whether the taxpayer’s financial position supports their ability to pay their tax debt within the IRS’s 10-year collection statue.
If a taxpayer qualifies for an offer in compromise, there are two ways that they could satisfy their debt: lump-sum payments or periodic payments. Under the lump-sum plan, 20% of the tax debt must be paid immediately, after which the taxpayer must eliminate the debt within five payments. Alternatively, the periodic payment plan does not require a large payment before installment payments begin.
If you are concerned about whether an OIC could be applied to penalties derived from a foreign bank and financial account reporting (FBAR) or other various offshore penalty issues, you should consult with our dually licensed California Tax Attorneys and CPAs today.
Could an Offer in Compromise Be Used for FBAR and other Offshore Penalties?
When a person controls or has an interest in a foreign financial account, the tax laws of the United States require them to declare any related taxable foreign income from offshore income generating assets and comply with various foreign information reporting & FBAR requirements. If the taxpayer misses the filing deadline for their foreign account reporting, they could be subject to massive fines, which could be exponentially increased depending on whether the violation was deemed to be intentional or viewed as accidental. Fortunately, it may be possible for a taxpayer to use the IRS OIC program to minimize the tax and interest related to an offshore account, but the penalties assessed due to FBAR filing penalties will not qualify for an OIC.
When dealing with penalties assessed due to FBAR reporting, a person may have already submitted a request for an offer in compromise to the IRS that includes their FBAR tax assessments and other tax liabilities. Note, however, the IRS has stated that they do not possess the authority to approve of an OIC for FBAR penalties as FinCen requires the filing of an FBAR and not the IRS.
If you have already requested an OIC that includes an FBAR penalty, the IRS suggests that you use Form 656 to amend your OIC and remove the inclusion of the assessed FBAR liabilities. If a taxpayer does not submit an amended Form 656 where an in process OIC requests FBAR relief the IRS will reject the offer in compromise as un-processable.
Additionally, when a taxpayer is penalized for FBAR violations, they could be investigated by the IRS if they submit an OIC requesting FBAR relief. During this investigation, an IRS examiner will look at the financial status of the taxpayer and may also investigate other foreign accounts the taxpayer may own outside the country.
When looking at these rules, it is understandable that a taxpayer could be confused about how an OIC could help them when faced with FBAR penalty assessments. Our dually licensed California Tax Lawyers and CPAs can explain how these policies will most likely impact you.
Alternatives for Offers in Compromise
An offer in compromise is not the only collection alternative that taxpayers may have for dealing with assessments of tax, penalties, and interest. The taxpayer may choose to negotiate an installment agreement with the IRS to pay off their cumulative tax debt. This would allow a person to spread out their tax payments over as much as 7 years.
Additionally, if the IRS deems that your tax debt is “currently not collectible,” they may provide the taxpayer with a limited amount of time to improve their financial situation before they attempt to enforce payment. Another potentially viable options for handling crushing tax debt is to consider filing for bankruptcy.
The most important fact to remember is that the IRS and its Revenue Officers will ordinarily attempt to reach a workable collection alternative that facilitates a taxpayer paying off their tax debt and will not ordinarily resort to aggressive collection alternatives or seek a criminal tax prosecution where an honest effort by a taxpayer to comply with their collection efforts is made. It is vital to be responsive to communication the IRS has with you or your representative regarding your tax debt.
Call Our Dually Licensed California Tax Attorneys and CPAs to Discuss Offers in Compromise that Involve FBAR Penalties
If you failed to fulfill your FBAR filing obligations, our dually licensed California Tax Attorneys and CPAs are willing to help you apply for an OIC. The Tax Law Offices of David W. Klasing has exceptionally served our clients in complex FBAR matters, and our services are available to you today. To schedule a confidential reduced rate initial consultation with a member of our legal team, call our law offices at (800) 681-1295 or schedule online today.
We Are Here for You
Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
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Questions and Answers on Offer in Compromise
- Do I need to provide financials if the IRS requests them?
- How does the IRS calculate my income?
- David W. Klasing Offer in Compromise help
- How long does it take to get an Offer in Compromise?
- What exactly is an Offer in Compromise?
- How exactly do I apply for an Offer in Compromise?
- How to protect my Offer in Compromise from being revoked
- Prerequisites to obtaining an Offer in Compromise
- Form 433-A (OIC) Collection Information Statement with OIC
- When will the IRS entertain an Offer in Compromise?
- What are the ways Offers in Compromise can be paid
- Objectives of the IRS Offer in Compromise Program
- Will Offer in Compromise affect criminal tax liability?
- Offer in Compromise includes liabilities prior to marriage
- What payments are required with an Offer in Compromise
- Will an Offer in Compromise affect installment agreement
- Offer in Compromise effect on statute of limitations
- Filing Offer in Compromise affect collection actions?
- How will I know if my Offer in Compromise is accepted?
- What happens when IRS finds something wrong with my offer
- Why was my offer found to be unacceptable?
- Is an accepted Offer in Compromise public record?
- What legal effects does entering into an Offer in Compromise have on a taxpayer?
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