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.
When Is a Delinquent FBAR 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 an account on a previously filed FBAR. The delinquent FBAR must 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.
Who Must File a Delinquent FBAR?
Taxpayers must file a delinquent FBAR if they meet the following conditions:
- Do not need to use the OVDP or the streamlined filing compliance procedures to file delinquent or amended tax returns
- Do not need to report and pay additional tax
- Have not filed the required FBAR form
- Are not under a criminal or civil investigation by the IRS
- Have not been contacted by the IRS previously about the delinquent FBAR
What Is the Delinquent FBAR Submission Procedure?
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
Not everyone is able to file electronically. In such a case, taxpayers must contact FinCEN’s regulatory help line 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.
What Forms Are Required to File a Delinquent FBAR?
Most taxpayers will complete the online FBAR form (FinCEN Form 114) at the link in the previous header. 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.
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 FBAR reporting 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 IRS provides more information about penalties here. The civil penalty maximums are adjusted annually for inflation, and they may be in amounts in excess of the balance in the foreign financial account. Criminal penalties can result in fines of up to $500,000 and/or jail time of as long as 10 years.
How 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.
If you innocently failed to report the required foreign financial information to the IRS, you don’t have anything to worry about. You just need to file the delinquent FBAR form, and you will be good to go. But because there is a lot involved in the delinquent FBAR submission procedures, you should seek help from an experienced IRS attorney to ensure that you are doing things correctly. For further guidance on the delinquent FBAR submission procedure, consult a tax professional today.