The Delinquent FBAR Submission Procedures are one of the programs available under the Offshore Voluntary Disclosure Program for taxpayers with unreported foreign financial accounts to come into compliance.
Do you need to file an FBAR?
If you are a US citizen or tax resident, you may have a foreign bank account reporting obligation. Form finCEN 114, Report of Foreign Bank and Financial Accounts (also commonly known as the Foreign Bank Account Report, or “FBAR”) is required to be filed annually by “each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country.
A United States Person includes U.S. citizens, green card holders, and resident aliens who meet the substantial presence test.
If the aggregate value (total value) of all reportable accounts exceeds at any point in the calendar year exceeds $10,000, all such accounts must be reported.
Example: Bob has 5 foreign bank accounts. The highest total value of all accounts was on July 1, 2016. On this date Bank A had $1,000, Bank B had $3,000, Bank C had $0, Bank D had $5,000, and Bank E had $2,000, resulting in a total value of $11,000. Therefore, Bob has an FBAR filing requirement with respect to all 5 of his foreign bank accounts.
Reportable foreign financial accounts include:
- Bank accounts
- Securities accounts
- Life insurance policies with cash value
- Brokerage accounts
- Mutual funds
- Debit cards and pre-paid cards
- Certain capital assets that are kept in a safe deposit box at foreign bank
Do you qualify for the Delinquent FBAR Submission Procedures?
You must meet these requirements to qualify for these procedures:
- You do not need to file delinquent or amended tax returns to report and pay additional tax,
- You have not already filed a required FBAR,
- You are not under a civil examination or a criminal investigation by the IRS, and
- You have not already been contacted by the IRS about the delinquent FBARs
How many years should you file?
You should prepare delinquent FBARs for all tax periods for which the statute of limitations remains open.
The statute of limitations is 6 years from the date of the FBAR filing deadline. Keep in mind also that the deadline for FBAR filing changed from June 30 to Apr. 15 in 2015.
What do I write in the statement for reasonable cause?
There’s no copy and paste language for a reasonable cause statement. It is unique to each client’s specific matter.
Is there a penalty for filing late?
There’s really no such thing as a “late FBAR penalty”. FBAR penalties are generally related to unreported income on your tax return. If there is no unreported income, it would be exceedingly rare for the IRS to impose a penalty. Here’s the language from the IRS:
The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.
There is, however, a penalty for not filing if the IRS contacts you before you’ve had a chance to file the delinquent FBARs.
- Under 31 USC 5321(a)(5)(B), a penalty, not to exceed $10,000 per violation, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements.
- Under 31 USC 5321(a)(5)(C), a penalty for a willful FBAR violation may be imposed on any person who willfully violates or causes any violation of the FBAR filing and recordkeeping requirements. The statutory ceiling is the greater of $100,000 or 50% of the balance in the account at the time of the violation.
Do you need a tax attorney for the Delinquent FBAR Submission Procedures?
Not necessarily, if you’re absolutely certain that there are no related issues on your tax returns. Oftentimes, clients think that they just have missed FBAR filings. We sometimes uncover related errors and omissions on the tax returns, in which case the Delinquent FBAR Submission Procedures are not appropriate.