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FBAR case and statute of limitations: Court win for taxpayers

The Foreign Bank Account Reporting Form (FBAR) is required for taxpayers that hold certain foreign accounts. The Internal Revenue Service (IRS) has pushed for compliance with reporting requirements in recent years. The agency has come down hard on those who fail to comply and has moved forward with investigations and penalties against those who violate these requirements. Penalties have included hefty fines and imprisonment.

But just how far back can the IRS investigate? That was the issue in a recent case decided by the Tax Court.

The issue involves whether or not the IRS can hold a taxpayer accountable after the three-year statute of limitations expires. In this case, a taxpayer received a notice of deficiency after the statute expired. Changes in the law have allowed for an extension of this statute to six years, but the changes were not enacted prior to 2010. As such, the court questioned whether or not it was appropriate to extend the IRS’ reach in this situation to the tax years in question, 2006 through 2008. Ultimately, the court held against the IRS. As a result, the taxpayer did not owe additional taxes.

A word of caution: It is important to note that every tax case is its own case. The results of the case noted above may not hold true for other tax payers. A piece in Accounting Today examined this specific case and noted that the IRS can still extend the statute if it can establish proper grounds such as fraud or a substantial understatement of income. 

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