The Internal Revenue Service (IRS) requires all taxpayers who have an aggregate value of more than $10,000 in their foreign bank accounts at any time in the calendar year to file a Report of Foreign Bank and Financial Accounts (FBAR). You need to file this form, for example, if you have $20,000 in a single foreign bank account or if you have $3,335 in three different accounts.
The filing requirement applies to citizens, residents, corporations, partnerships, limited liability companies (LLCs), trusts, and estates, regardless of whether their account produced any taxable income. Taxpayers must file the FBAR electronically through the Financial Crimes Enforcement Network BSA E-filing system. It does not get attached to your regular tax return.
The penalties for not filing are severe. Many people are not aware of this filing requirement, and if you have forgotten to file an FBAR, the FBAR Amnesty Program may be able to help you. This guide provides an overview of the amnesty program and explains why you should reach out for professional help as soon as possible if you have missed FBAR filing requirements.
An Overview of the FBAR Amnesty Program
The FBAR Amnesty Program is designed to help taxpayers with offshore assets get in compliance with the IRS’s tax reporting requirements while minimizing fines and penalties as much as possible. The program is open to anyone who has failed to meet the reporting requirements for foreign bank accounts, but you must reach out to the IRS first.
You do not qualify to participate in the FBAR Amnesty Program if the IRS already knows about your foreign bank accounts, if you are in the middle of an audit, or if the IRS has notified you that it plans to audit you.
How can I Participate in the FBAR Amnesty Program?
You’re probably wondering what you should do next if you’re eligible to participate in the FBAR Amnesty Program. Here are the steps you need to work through to get back into compliance with the IRS.
1) File Old FBAR Reports
You need to file FBAR forms for the years you failed to file, and you may have to go back at least six years. Do not just start filing an FBAR the year you realize you need to do this report. Go back and file your old reports. You will also need to add a statement about why you’re filing these reports late.
2) Amend Old Tax Returns
FBAR reporting is required whether your foreign accounts generated any income or not, but if they generated gains, you might need to amend your old tax returns. You typically have three years from the due date to amend previous years’ returns.
3) Prepare to Pay Penalties
Here’s the great news about the amnesty program: The IRS will not charge you a penalty for late filing if you correctly reported and paid tax on any income related to these accounts, as long as you haven’t been contacted about income tax examination.
You may face penalties if your accounts generated income and you failed to pay tax on that income, but you will face much more severe penalties if the IRS finds you first than if you voluntarily disclose your assets.
4) Contact a Tax Attorney
Most taxpayers would be wise not to try to deal with the FBAR Amnesty Program on their own. Reach out to a seasoned tax professional who can guide you through the process, and if possible, look for a company specializing in tax debt and tax problem mitigation. They deal with the IRS every day, and they know how to reduce and eliminate penalties much more effectively than you can do on your own.
5) Act Quickly
Timing is of the essence with all IRS amnesty programs. The agency offers these programs to help taxpayers get into voluntary compliance, and that means you reach out first. The IRS does not consider your disclosure to be voluntary if it’s in response to an audit or the threat of one.
The FBAR Amnesty Program is designed to motivate taxpayers to report their offshore assets proactively. It isn’t meant to protect people when the IRS is already scrutinizing them, so waiting until that point makes you ineligible for this program.
What are the Penalties for Delinquent FBAR?
The penalties for not meeting your FBAR filing requirements can be severe, and the IRS assesses them differently based on the situation. Here are the penalties you can face if you aren’t compliant with FBAR filing requirements:
Non-willful violations are typically committed accidentally by someone who wasn’t aware of their filing requirements. They can be up to $12,921 as of 2021.
This penalty applies to people who purposefully violated the reporting requirement, and it can be up to $129,210 or up to 50% of the account balance.
This penalty is specifically reserved for financial institutions or businesses. These types of organizations can face a penalty of $1,118 if they don’t meet their FBAR filing requirements.
Pattern of Negligent Activity
Missing a single filing requirement is one thing, but if the IRS believes that you have a pattern of negligent activity, it can apply a fine of up to $86,976. This penalty also only applies to financial institutions and nonfinancial trades and businesses. It’s not for individuals.
The penalty for willful failure to report is 10 times the penalty for non-willful failure to report, and again, if the IRS sees a pattern, the penalties can be extremely severe. Working with a tax attorney can help ensure you make the case that your omissions were not willful and there wasn’t a pattern.
Contact the Silver Tax Group for Advice on the FBAR Amnesty Program
Learning that you’re on the wrong side of the IRS’s many laws can be a scary thing. The Silver Tax Group has been helping people get into compliance with the IRS for over 10 years through amnesty programs and other means, and we can do the same for you.
We specialize in providing our clients with the most responsive services possible, and we work hard to protect them from unnecessary fees and penalties. Don’t let the IRS find you; contact our team today for advice on the FBAR amnesty program or other IRS issues.