IRS Addresses Late Filing of International Tax Documents and FBARs

Although the IRS certainly has its plate full of domestic tax issues, the agency keeps a wary eye on international tax matters, as well. Most recently, the agency has focused on electronic requests for late-filing relief and the long-standing violations of the rules regarding Reports of Foreign Bank and Financial Accounts (FBARs - Form 114).

New Filing Relief Available

The IRS released guidance on how taxpayers can submit certain international tax documents electronically via eFax to receive late-filing relief, which includes the following:

• Gain recognition agreements. Generally, U.S. taxpayers transferring property to a foreign corporation must file a gain recognition agreement. Any taxpayer who fails to file a gain recognition agreement or other required documents may qualify for late-filing relief if the failure to comply wasn’t willful. Additionally, a taxpayer may qualify for penalty relief if the failure was attributable to reasonable cause.
• Dual consolidated losses. U.S. corporations subject to the dual consolidated loss rules must file certain documents with the IRS. Taxpayers who didn’t file required documents on time may request late-filing relief if their failure to file was attributable to reasonable cause.
• Partnership gain deferral contributions. Partnerships with a gain deferral contribution must file certain documents with their partnership returns. Taxpayers who fail to submit all required documents may request late-filing relief if their failure to comply wasn’t willful. To qualify for penalty relief, taxpayers must show their failure to comply was attributable to reasonable cause.

This method allows taxpayers to securely communicate with the IRS, reducing their correspondence burden and delivery delays while supporting compliance.

FBAR Crackdown Forthcoming

The IRS also recently announced a sweeping effort to restore fairness to the U.S. tax system — all thanks to funding from the Inflation Reduction Act, which was signed into law in August 2022. The law allocated about $80 billion to the IRS to focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.

From an international tax perspective, the IRS promises more scrutiny of FBAR violations. The Bank Secrecy Act requires U.S. citizens with certain foreign accounts to file FBARs. The filing requirement kicks in when a U.S. person has a financial interest in, or other authority over, one or more foreign bank accounts with an aggregate balance exceeding $10,000 during the previous calendar year.

The filing requirement is enforced through civil and criminal penalties. For individuals whose failure to file an FBAR is willful, the maximum civil penalty is the greater of $100,000 or half the balance in the unreported account.

According to the IRS, wealthy taxpayers from all segments continue to use foreign bank accounts to avoid mandatory reporting and related taxes. The agency intends to audit the most egregious potential FBAR violation cases in fiscal year 2024.

Closer Than Ever

It’s critical for U.S. taxpayers with foreign business interests and foreign financial accounts to comply with their information-filing requirements and tax obligations. Moore Doeren Mayhew's advisors have worked with clients to comply with similar requirements and are familiar with the eFax process on late filed documents. If you would like to discuss any of these issues, please contact one of our advisors today.