FBAR reporting, or the Report of Foreign Bank and Financial Accounts, is a crucial responsibility for any U.S. taxpayer with foreign financial accounts. To ensure compliance, it is essential to understand who needs to file FBAR, how to report, and the potential penalties for non-compliance.
In general, if you have a financial interest in or signature authority over one or more foreign financial accounts, you must file FBAR. FBAR reporting is not the same as reporting foreign income on your tax return, and failure to comply with FBAR requirements can result in significant civil and criminal penalties. Therefore, you should consult with our team to maintain tax compliance in an increasingly interconnected global financial landscape.
To receive a free evaluation of your case with our FBAR tax attorneys, contact McCormick Tax Law by calling (215) 630-0861.
What Are the Foreign Bank and Financial Accounts (FBAR) Reporting Requirements?
The FBAR, or Foreign Bank Account Report, is a mandatory form that U.S. taxpayers must file with offshore financial accounts with an aggregate value of $10,000 or more. The official name of this form is FinCEN Form 114, and it is submitted to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
The FBAR requires taxpayers to report detailed information about their foreign financial accounts, including the name and address of the foreign financial institution where the account is held. While these guidelines can be complex, our FBAR tax attorneys are here to help you navigate your duties so that you stay compliant. Remember that failure to file the FBAR can result in significant penalties, including fines and even criminal charges.
Who is Required to File an FBAR?
If you are a U.S. citizen, resident, entity, or a certain non-resident, you are required to file an FBAR if you have a financial interest in or signature authority over one or more foreign financial accounts. This report must be filed if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.
“Financial interest” refers to any type of ownership, including indirect ownership. “Signature authority” refers to the power to control the disposition of assets held in a foreign financial account, either alone or in conjunction with another individual or entity.
What Types of Foreign Accounts Must Be Reported?
Foreign financial accounts that must be reported include bank accounts, brokerage accounts, mutual funds, trusts, and other types of accounts that are held outside the United States. It is important to note that the FBAR reporting requirements might also now extend to cryptocurrency accounts held on foreign exchanges. This means that individuals who hold cryptocurrency assets on foreign exchanges might be required to file an FBAR if the total value of their foreign financial accounts exceeds a certain threshold.
When Must the FBAR Be Reported?
The FBAR should be filed by April 15th of the year following the calendar year being reported. However, an automatic extension until October 15th is granted without filing any additional forms.
The FBAR should be filed electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System. Accurate and timely reporting is crucial to avoid penalties that can be imposed for failure to file or for filing inaccurate or incomplete information.
What Are the Penalties for Failing to File an FBAR?
It is critical to comply with the FBAR reporting requirements to avoid significant penalties and potential prison sentences. In case of non-willful violations, the penalties can range from $500 to $10,000 per violation. Non-willful violations refer to instances where the violation was not intentional or because of a lack of knowledge of the FBAR requirements.
On the other hand, willful violations carry more severe penalties and can result in a penalty of up to the greater of $100,000 or 50% of the balance in the foreign account at the time of the violation. Willful violations refer to instances where the violation was intentional or because of a reckless disregard of the FBAR requirements. Penalties will typically be imposed for each year that a violation occurs, which can result in substantial financial liability. Also, the threat of criminal prosecution will hang over those who intentionally defrauded the IRS, which has been more aggressive in pursuing tax evasion cases.
How Can I Report an FBAR if I Am Not in Compliance?
If you have failed to submit an FBAR or think you have committed an error in doing so, the IRS offers several FBAR amnesty programs that you might qualify for. However, the available programs will depend on the reasons behind your non-compliance, which will typically hinge on whether the mistake was intentional or unintentional.
Voluntary Disclosure Program
The IRS Voluntary Disclosure Program provides an avenue for taxpayers to voluntarily come forward and disclose their unreported foreign accounts. This program is designed for taxpayers who have willfully failed to comply with their tax obligations, including FBAR reporting. By participating in this program, taxpayers might reduce the risk of criminal prosecution and potentially minimize the penalties associated with non-compliance.
This program offers the opportunity for participants to submit amended tax returns and FBARs for the past eight years. Participants are also required to pay any back taxes owed, along with interest. Finally, one of the biggest benefits of the Voluntary Disclosure Program is the protection against criminal prosecution, which can be a significant relief for those who are worried about the potential consequences of their past non-compliance.
Streamlined Domestic Offshore Program
This program is designed to assist taxpayers who have unknowingly failed to report their foreign financial accounts and fulfill specific criteria. By participating in this program, taxpayers can comply with reduced penalties and ensure that their financial records are up to date.
To be eligible for the Streamlined Domestic Offshore Program, you must have failed to report your foreign financial accounts unintentionally. Additionally, you must be a resident of the United States, provide certification of non-willfulness, and submit accurate tax returns for the past three years and FBARs for the past six years.
You must also pay any due taxes, along with a miscellaneous offshore penalty, calculated as 5% of the highest aggregate balance of unreported foreign accounts.
Streamlined Foreign Offshore Program
The Streamlined Foreign Offshore Program is a tax amnesty initiative offered by the IRS specifically designed for U.S. taxpayers living outside the United States who have unintentionally failed to report their foreign financial accounts. The program allows eligible taxpayers to come clean and avoid steep penalties and potential criminal charges.
To be eligible for the Streamlined Foreign Offshore Program, the taxpayer must meet certain criteria, including demonstrating a non-willful failure to report foreign financial accounts and residing outside of the United States for at least 330 days in any one of the past three years. In addition, the taxpayer must provide a certification of non-willfulness, which should be accompanied by a complete and accurate submission of tax returns for the past three years and FBARs for the past six years.
Our FBAR Tax Attorneys Are Here to Help Protect Your Rights and Assets
For your free case analysis with our international tax lawyers, call McCormick Tax Law today at (215) 630-0861.