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Ben Wagner Explaining the Basics of the Quiet Disclosure of an FBAR

Explaining the Basics of the Quiet Disclosure of an FBAR

May 6, 2014Ben WagnerCategories: Ben Wagner, FBARTags: 2011 OVD Program, 2012 OVD Program, Collection Information Statement for Businesses, Collection Information Statement for Wage Earners and Self-Employed Individuals, disclosure FBAR, FBAR, FBAR controversey, FBAR disclosure, FBAR dispute, FBAR penalties, FBAR program, foreign bank account, Foreign Bank Account Reporting, Form 3520, Form 3520-A, Form 433-A, Form 433-A FBAR, Form 433-B, Form 433-B FBAR, Form 5471, Form 5472, Form 8865, Form 926, Form-B FBAR, how to report a foreign bank account, Internal Revenue Service’s (IRS’s) Offshore Voluntary Disclosure Program (OVD Program), Isle of Mann Tax Treaty, Metro Minnesota Tax Attorney, Metro MN Tax Attorney, Metro MN Tax Lawyer, Minneapolis IRS Tax Audit, Minneapolis Tax Attorney, Minneapolis Tax Firm, Minneapolis Tax Lawyer, Minnesota IRS Audit, Minnesota Tax Appeal, Minnesota Tax Attorney, Minnesota Tax Audit, Minnesota Tax Firm, Minnesota Tax Lawyer, MN Tax Attorney, MN Tax Firm, MN Tax Lawyer, Offshore Voluntary Disclosure Program (OVD Program), OVD Program, Quiet Disclosure, quiet disclosure FBAR, quiet FBAR, report a foreign bank account, Report of Foreign Bank and Financial Account, Report of Foreign Bank and Financial Account (FBAR), reporting a bank account abroad, States of Guernsey Tax Treaty, States of Jersey Tax Treaty, Twin Cities, Twin Cities Tax Attorney, Twin Cities Tax Lawyer

This is the sixth article in the Offshore Voluntary Disclosure Program (OVDP) Frequently Asked Questions series. This series is intended to provide taxpayers and practitioners with answers to the most commonly asked questions relating to the Internal Revenue Service’s (IRS’s) 2012 OVDP. Other posts in this series, offering a basic description of the OVDP and some of its core requirements, can be found here.

What is the “quiet disclosure” of an FBAR and what are the risks with adopting that approach?

A “quiet disclosure” is when a taxpayer prepares and files the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) disclosing previously unreported foreign assets or income and pays the corresponding tax and interest. One of the reasons a taxpayer might adopt this approach is that the taxpayer hopes to minimize the financial impact. All that the taxpayer pays is the corresponding tax and interest. The taxpayer utilizing the “quiet disclosure” approach is hoping that the IRS does not notice that the foreign assets or income were not reported and that the IRS just accepts the FBARs as filed. This could be the end of the taxpayer’s case. However, there are significant risks with this approach.

There is always a chance that the IRS examines the FBARs submitted in a “quiet disclosure.” If the IRS selects those returns for examination, the taxpayer is no longer eligible for the OVDP. That means the more beneficial penalty structure is no longer available. 

For taxpayers making the “quiet disclosure” who have to file amended returns to complete the disclosure, there is an even greater chance that the IRS examines those amended returns. And again, as soon as an examination is started, the taxpayer is no longer eligible for the OVDP. 

The threat of a referral to Criminal Investigation also still exists when a taxpayer chooses to proceed with a “quiet disclosure.” This is a very serious threat. Like with a civil IRS examination, a taxpayer subject to a Criminal Investigation examination is not eligible for the OVDP.

A taxpayer who makes a “quiet disclosure” is eligible for the OVDP if an IRS examination has not been started. This is important as some taxpayers may want the predictability that the OVDP provides after initially proceeding with a “quiet disclosure.” So long as an examination has not been started, that predictability, even though it means being subjected to harsher penalties, is available in the OVDP.

 

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