The IRS requires Americans to report foreign financial accounts — including bank accounts, mutual funds, and brokerage accounts — to the Treasury Department, in addition to keeping records of those accounts. Reporting those accounts entails filing a Report of Foreign Bank and Financial Accounts (FBAR).
There are some taxpayers who don’t follow the correct procedures for reporting those foreign accounts to the government, and those people are required to file a delinquent FBAR.
Here’s a look at the delinquent FBAR submission procedures that you must follow in order to fulfill the IRS requirements.
What Are FBAR Forms?
FBAR refers to Foreign Bank and Financial Accounts Reporting. The forms were designed to prevent people from putting money in offshore banks to evade paying taxes.
One of the primary forms is not filed with the Internal Revenue Service, but with the U.S. Treasury Department’s Financial Crimes and Enforcement Network, also known as FinCEN. Money in any foreign financial institution must be reported on FinCEN Form 114.
However, foreign bank accounts aren’t the only asset that may be subject to reporting on Form 114. The following must also be included:
- Stock held by a foreign financial institution
- Assets held in a foreign branch of a U.S. financial institution
- Other foreign financial assets like mutual funds, life insurance or an annuity contract
Other forms are filed with your tax returns to the IRS. They include Schedule B Part III of your tax return and possibly Form 8938. Schedule B asks for the country where each account is located.
Form 8938 is for specified foreign financial assets when the total value of the assets exceeds certain thresholds.
Who Is Required to File FBAR Forms?
If you meet any of the following criteria, regardless of where you reside, you are subject to filing a FinCEN Form 114:
- You are a U.S. citizen, green card holder or resident alien.
- You are the owner or beneficiary of an account, or you have control of the distribution of funds in the account.
- Your combined balance in your foreign accounts exceeds $10,000 at any point during the calendar year.
If you just realized that you meet the criteria but have not yet reported your foreign assets, you can still rectify your mistake. You can file a FBAR form, whether it is days or years past due.
What Are Some Common FBAR Filing Mistakes
Many people are not familiar with the FBAR regulations or qualifications, and therefore fail to file. Others may be familiar with them but may have qualified at some point in the year and not realized it. Two prevalent misconceptions lead to mistakes.
One is that the $10,000 limit is not just for one account but the combination of all accounts. The other misconception is that life insurance policies, pension funds or inheritance are not subject to offshore voluntary disclosure or offshore reporting requirements.
When is a Delinquent FBAR Submission Necessary?
Taxpayers must file a delinquent FBAR if they didn’t fail to report any income and doesn’t owe any additional tax, but has innocently and non-willfully failed to file the required FBAR.
A delinquent FBAR is also necessary if the taxpayer innocently failed to include a foreign bank account on a previously filed FBAR.
The delinquent FBAR submission procedures include a statement explaining why the form is being filed late. Failing to file the FBAR on time will not lead to the IRS imposing a penalty, unless an investigation discovers that the taxpayer failed to report income.
How Do I Report a Delinquent FBAR?
As with most IRS requirements, there is a specific procedure that must be followed by taxpayers who are filing a delinquent FBAR form. That process includes the following:
- Review the requirements and instructions for filing the FBAR
- Include a statement explaining why the FBARs are being filed late
- File all required FBARs electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System
- Select a reason for the late filing on the electronic form’s cover page
BSA’s Online Filing Portal
Three criteria qualify you to file online with the IRS. If any of the following applies, you may submit your late FBAR form on BSA’s online filing portal with little chance of penalty:
- If you were unaware of your obligation to file FBAR forms, or if there is a legitimate reason why you did not or could not file
- If you have already reported your financial accounts and paid taxes on your U.S. tax returns that should have been reported on the FBAR form
- If you’ve not yet been contacted about a late form and you are not under civil examination or investigation by the IRS
Not everyone is able to file electronically. In such a case, taxpayers must contact FinCEN’s regulatory helpline at 1-800-949-2732 or, from outside the United States, 1-703-905-3975 in order to determine any possible alternatives to electronic filing. FBARs should not be filed with your federal tax return.
Streamlined Filing Compliance Procedures
Streamlined filing compliance procedures are available for those who have a more complex set of circumstances. If you meet any of these criteria, you may qualify:
- Your mistake was unwilling and unknowingly made
- You have made FBAR filing mistakes in the past
- You have not yet filed all your U.S. tax returns or paid all the tax due on your foreign assets
With this method, you can file up to three years of late tax returns and six years of delinquent FBARs without incurring a non-filing penalty. The process is complicated and may be best handled with the help of a tax professional experienced with late FBAR filings.
What Forms Are Required to File a Delinquent FBAR?
Most taxpayers will complete the online FBAR form (FinCEN Form 114), but if a taxpayer must paper-file the FBAR, he will complete the paper FBAR form and mail it to the IRS via the address noted in the form’s instructions.
For paper-filing, the IRS will not accept the obsolete TD F90-22.1 form or a printed FinCEN Form 114, which is intended for e-filing only. If someone else is e-filing the FBAR on your behalf, you must use the Record of Authorization to Electronically File FBARs (FinCEN Report 114a).
That form doesn’t need to be submitted with the FBAR, but it must be kept and made available to the IRS or FinCEN upon request.
What Records to Keep for an FBAR
Taxpayers must keep records for each account that need to be reported on a FBAR. That information must include:
- Name on the account
- Account number
- Name and address of the foreign bank
- Type of account
- The account’s maximum value during the reporting year
Documents that satisfy the above information include bank states or copies of filed FBARs, and the records must be kept for five years after the FBAR’s due date.
What Are Some Penalties Associated With Late FBAR Forms?
As mentioned, there is not a penalty for filing a delinquent FBAR. However, the IRS can issue civil penalties to taxpayers under the following circumstances involving delinquent FBARs or recordkeeping violations:
- Non-willful violation of a foreign financial agency transaction currently has a maximum penalty of $12,921
- Willful violation of a foreign financial agency transaction results in a penalty of 50% of the amount or $129,210, whichever is greater
- Negligent violation by a financial institution or a non-financial trade or business can be fined up to $1,118
- A pattern of negligent activity by a financial institution or a non-financial trade or business can result in penalties of up to $86,976
The civil penalty maximums are adjusted annually for inflation, and they may be in amounts in excess of the balance in the foreign financial accounts. Criminal penalties can result in fines of up to $500,000 and/or jail time of as long as 10 years.
Need to File a Delinquent FBAR? An IRS Attorney Can Assist You
As with anything regarding tax filing, you shouldn’t file a delinquent FBAR on your own. If it is not done correctly, it can raise the possibility that you can be audited.
That is where Silver Tax Group comes into the picture. We have a team of skilled IRS attorneys that have years of experience in helping taxpayers correctly file forms with the IRS and FinCEN.
We know exactly what needs to be done and can help you through the process step-by-step.
Getting assistance from an experienced IRS attorney is especially important when filing a delinquent FBAR because, when done properly, there is no penalty involved.
If you try to do it without the help of a professional, you may not do it correctly and get hit with an unnecessary penalty if reached out for assistance from a professional, like our Silver Tax Group team.
Need Help Filing a Delinquent FBAR?
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