Proposed FinCEN Rulemaking for Rules on FBAR Reporting for Financial Professionals (3/4/16)

FinCen has released proposal revisions to rules for FBAR reporting for financial professionals.  The press release is here and the proposed changes are here. As summarized in the press release:

The NPRM [Notice of Proposed Rulemaking] proposes to:

• Remove the provisions that limit the information reported with respect to situations when a filer has 25 or more foreign financial accounts, and instead require all U.S. persons obligated to file an FBAR to report detailed account information on all foreign financial accounts for which they are required to file an FBAR.
• Amend the FBAR regulation by eliminating the requirement for officers and employees of institutions to report on institutional accounts for which they have signature authority, but no financial interest, due solely to their employment, so long as their employer has an FBAR filing obligation.
• Require institutions to maintain a list of all officers and employees with signature authority over those same accounts; this list would be made available to FinCEN and law enforcement upon request.

Those interested in this subject having access to Tax Notes Today might want to read the TNT article:  Andrew Velarde, FBAR Changes Try to Balance Compliance Burden, Enforcement , 2016 TNT 42-3 (3/3/16).  I don't have permission to post it here.  I don't plan address the changes further because of demands on my time and my belief that this area of the broader subject is not of particular interest to the mainstream readership of this blog.

Good Article on Pitfalls for Quiet Disclosure in the Offshore Setting (2/20/16)

Many readers of this blog will or should be interested in this article offered by  Frank Agostino and Lawrence A. Sannicandro of Agostino & Associates:  “Gotcha" -- Unanticipated Audit Issues After Quiet Disclosures (Agostino & Associates Monthly Journal of Tax Controversy (February 2016), here.  This firm has been very active in the offshore account area and thus can speak with authority and experience in this context.

I cut and paste from the Introduction and the Conclusion so that those interested will know whether to read the article.

I. Introduction 

Some taxpayers not willing to pay the 27.5% penalty that otherwise applied under the traditional Offshore Voluntary Disclosure Programs have made quiet disclosures or entered into the Streamlined Filing Compliance Procedures (“Streamlined Program”). Many of these taxpayers rejected the protections of the Offshore Voluntary Disclosure Programs in favor of what they perceived to be a more cost-effective quiet or streamlined disclosure. These taxpayers have subjected themselves to criminal liability and audit adjustments which, depending upon the source of the unreported income, could easily eclipse the 27.5% penalty under the traditional program. In this regard, audits of returns submitted as quiet disclosures or under the Streamlined Program have been (and should be) troubling to both practitioners and clients.  

This article discusses common audit adjustments that can apply to returns for taxpayers with international activities, including: the disallowance of deductions and credits for U.S. citizens, resident aliens, and nonresident aliens; the disallowance of the foreign earned income exclusion for U.S. citizens and resident aliens; and the Internal Revenue Service’s ability to recharacterize as ordinary income purported gifts and bequests from a partnership or a foreign corporation under Treas. Reg. § 1.672(f)-4. This article also highlights those taxpayers who are most likely to be negatively affected by each type of adjustment. Finally, for taxpayers who imprudently made a quiet disclosure, this article discusses how to transition the taxpayer from a quiet disclosure to a traditional Offshore Voluntary Disclosure Program.  

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VIII. Conclusion

Practitioners worry about audits of returns submitted as quiet disclosures for good reason. The Service has been far less draconian in submissions under a traditional Offshore Voluntary Disclosure Program or the Streamlined Program, but revenue agents have taken a hard line in disallowing otherwise deductions and credits with respect to quiet disclosures. In this regard, the Service is granted broad authority to deny legitimate deductions, credits, and income exclusions, and to recast transactions to not only prevent the avoidance of U.S. tax but to impute income to U.S. donees and legatees. Practitioners should consider these issues when advising taxpayers to submit  returns as quiet disclosures, pursuant to the Streamlined Program, or under the traditional Offshore Voluntary Disclosure Program. Finally, it is important for practitioners to reevaluate whether the quiet disclosure was in fact a more cost-effective alternative than the traditional Offshore Voluntary Disclosure Program before being contacted by the Service.