The Foreign Bank and Financial Accounts (FBAR) filing requirement is a crucial obligation for U.S. taxpayers with foreign financial accounts. However, failure to comply with this requirement can have severe consequences.
As a U.S. taxpayer with foreign financial accounts, it is essential to comply with the FBAR filing requirement. Failure to submit an FBAR can result in severe consequences, such as hefty financial penalties, imprisonment, and potential loss of account funds. Fortunately, there are various options available to rectify non-compliance, such as FBAR disclosure, voluntary disclosure programs, streamlined filing procedures, or delinquent submission procedures. These programs enable taxpayers to correct their mistakes and avoid the severe repercussions of non-compliance.
For a free case assessment with our FBAR tax attorneys, call McCormick Tax Law today at (215) 630-0861.
What Can Happen if You Do Not File a Foreign Bank and Financial Account Report (FBAR)?
Failing to report foreign or offshore accounts has become a priority for the United States and IRS. As a result, audits of the FBAR have increased significantly. To avoid committing FBAR fraud, it is important to accurately report qualifying accounts and abstain from intentionally misrepresenting financial interests. If you are unsure whether a violation has occurred, our experienced FBAR tax lawyers can provide guidance on how to address the situation. It is crucial to note that concealing this information can result in severe penalties that can have a life-changing impact.
American taxpayers who hold funds or assets in offshore bank or financial accounts must report these accounts through the FBAR if the combined value exceeds $10,000 at any point during the previous year. Failure to comply with this requirement might result in severe penalties imposed by the IRS if discovered.
Civil penalties for willful violation of this rule can include a penalty equal to the greater of $100,000 or 50% of the aggregate balance of accounts reportable on an FBAR, as specified in 31 U.S.C. § 5321(a)(5)(C). Furthermore, if the matter is referred to the IRS criminal investigation unit, failure to file FBAR might result in criminal penalties, including prison sentences of up to five years.
Who is Required to File an FBAR?
As per the guidelines issued by the Financial Crimes Enforcement Network (FinCEN), individuals who are American citizens or residents and have financial interests or signature authority over foreign financial accounts are obligated to file a Report of Foreign Bank and Financial Accounts (FBAR). In some scenarios, even limited liability corporations and trusts that are formed in the United States might be required to file an FBAT.
The FBAR is mandatory if the total value of the foreign financial account exceeds $10,000 in a calendar year. Foreign accounts might include checking accounts, savings accounts, securities accounts, mutual funds, cash annuities, and other foreign accounts from a financial institution.
It is advisable for taxpayers with even minimal foreign assets to carefully review their FBAR filing obligations. It is essential to note that filing a tax return is distinct from submitting an FBAR filing.
Therefore, your FBAR Form 114 needs to be filed separately and directly with FinCEN. As FBAR regulations can change annually, individuals with foreign accounts should stay alert and keep themselves updated with the latest FBAR rules to ensure compliance.
If you fail to file an FBAR or make mistakes on your filing, it can have serious consequences, even if the mistakes were unintentional. However, several programs are available to help individuals come into compliance with FBAR regulations, depending on their circumstances.
How Can I Get Back into Compliance with My FBAR Reporting Requirements?
If you have failed to file an FBAR or if you think that you have made an error while filing, then you might be eligible to take advantage of various FBAR amnesty programs that are provided by the IRS. However, the availability of these programs will depend on the reason behind your non-compliance. In most cases, it will depend on whether the mistake was made intentionally or unintentionally.
Voluntary Disclosure Program
Assisting willful taxpayers to comply with tax laws is the primary objective of the Voluntary Disclosure Program (VDP). By submitting a comprehensive and timely VDP, taxpayers’ circumstances can be assessed by the IRS, and appropriate penalties can be determined. This can also help prevent criminal charges from being filed in certain cases. When filers are unable to certify non-willfulness under penalty of perjury, this disclosure option is typically the most viable choice.
Streamlined Domestic Offshore Program
The Streamlined Domestic Offshore Procedures (SDOP) were created by the IRS to help taxpayers who are not foreign residents, didn’t intentionally break the law, and filed their taxes on time. The program aims to help people who have undisclosed foreign assets, accounts, income, and investments comply with IRS regulations.
SDOP offers qualifying taxpayers the option to pay a 5% Title 26 Miscellaneous Offshore Penalty instead of other FBAR penalties. However, if a person can prove they had a reasonable cause for their non-compliance, they might avoid the 5% penalty imposed by SDOP. This is especially useful for those who don’t qualify for delinquency programs. Reasonable causes are determined by the IRS, finding no evidence of willful violation of FBAR filing requirements.
By participating in the SDOP program, compliant taxpayers might be able to have all penalties on their tax and asset accounts waived in full.
Streamlined Foreign Offshore Program
Taxpayers can take advantage of the Streamlined Foreign Offshore Program (SFOP) provided by the IRS. This program allows certain individuals to file amended or original tax returns for up to three years and submit an FBAR FinCEN Form 114 for up to six years. To qualify, taxpayers must certify under penalties of perjury that their actions were not willful and must not be under an IRS audit. Those who meet the eligibility criteria for SFOP must also file all the necessary tax documents and reporting forms and pay all the mandatory taxes and penalties.
Applying for the Voluntary Disclosure Program and SFOP requires separate submissions. If an individual is turned down for Streamlined Procedures, they will not be able to reapply for VDP. Nevertheless, foreign citizens who did not act deliberately might be able to avoid many penalties related to their offshore activities by using these procedures.
Delinquent FBAR Program
The Delinquent FBAR Submission Procedures (DFSP) provide a less formal option for U.S. residents and taxpayers who did not file their FBARs by mistake. This program is only applicable if the issue is related to the non-filing of FBAR, and there is no need to make changes to tax returns. Moreover, individuals who are not being investigated by the IRS can leverage this opportunity. Even if the IRS has not yet contacted you regarding FBAR delinquency, you can still use this procedure.
Our FBAR Tax Attorneys Are Here to Help
If you would like a free case evaluation with our international tax attorneys, contact McCormick Tax Law at (215) 630-0861.