In her recently-released annual report to Congress, IRS Taxpayer Advocate Nina E. Olson called for the IRS to improve its handling of those who have failed to file their Foreign Bank Account Reports (commonly referred to as “FBARs”).  In calling for reform, the Taxpayer Advocate summarized the voluntary disclosure program as a “resource-intensive, burdensome, punitive, one-size-fits-all approach designed for bad actors,” which is being applied to “benign actors who inadvertently violated the rules.”

Those who feel that the 27.5% penalty imposed under the existing voluntary disclosure program is too severe may choose to “opt out” of the mandatory-penlaty regime of the program and argue that a smaller penalty should be imposed.  However, as the Taxpayer Advocate notes, “even where taxpayers feel strongly that their FBAR noncompliance was due to reasonable cause or was not willful, [when] faced with the choice of accepting the IRS’s proposed penalty … or opting out for a full examination – with the hope of avoiding the penalty but with the knowledge that opting out could result in a potential penalty of far more than their net worth – many will not want to risk opting out.”

All U.S. persons with unreported foreign financial accounts should seek the advice of qualified tax counsel concerning FBAR reporting issues.

Stephen J. Pieklik of the Pittsburgh tax law firm Williams Coulson has succesffuly advised many clients with respect to FBAR matters, including the 2009 Offshore Voluntary Disclosure Program, the 2011 Offshore Voluntary Disclosure Initiative, and the 2012 Offshore Voluntary Disclosure Program.