FBAR Quirks

Because the FBAR technically is part of the bank secrecy act (Title 31) rather than the income tax code (Title 26), it contains traps for those who are used to tax law. Unlike income tax forms, FBAR forms must be received by the due date, not just mailed by it. There is no electronic filing, and forms must be mailed to a special address in Detroit rather than a taxpayer's usual IRS service center, although they may also be hand-delivered to a local IRS office. Unless Congress changes the law, the normal FBAR due date will remain June 30, which is out of sync with the normal tax deadlines of April 15 and October 15 (for those on extension).

Taxpayers who want to challenge FBAR penalties cannot do so in Tax Court, where they don't have to pay the tax, penalties and interest up front, notes Chamberlain Hrdlicka's Sheppard. Instead, taxpayers must pay the total liability -- which can be huge as a result of the penalties -- and sue for a refund in U.S. District Court. Also surprising to taxpayers (and perhaps their advisers) is that FBAR penalties are not dischargeable in bankruptcy. These little-known traps were highlighted in two recent cases, Williams v. Commissioner and United States v. Simonelli.

Last, most taxpayer data is protected under stringent IRS rules that make unauthorized sharing a felony. FBAR forms are not protected under those rules; instead, they are governed by a different privacy act and may readily be shared with other law enforcement agencies, according to Miller & Chevalier's Clarke.

 
     

 

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