In 2019-2020, FBAR Penalty Enforcement is at an all-time high. If a person does not timely file their annual FBAR with FinCEN in the current year, they may be subject to FBAR Penalties — but the penalties may be reduced or even eliminated through reasonable cause or IRS international tax amnesty. While the FBAR is not the most complicated International tax form you may come across in your lifetime, the FBAR penalties associated with not filing a timely FBAR can be pretty drastic. Even though FBAR Penalties can be tough, you may be able to reduce or even eliminate FBAR penalties (depending on the facts and circumstances of your situation) by timely submitting to one of the approved IRS offshore Amnesty Programs, or by making a Reasonable Cause submission.
What is the FBAR?
The FBAR is a Report of Foreign Bank and Financial Account Form. It is required to be filed by any U.S. person (U.S. Citizen, Legal Permanent Resident, or Foreign National who meets the Substantial Presence Test) in any year in which they have an annual aggregate maximum value total of more than $10,000 in their foreign accounts. It does not matter if the money is in one account or spread over several accounts. Once the threshold is met, then all accounts are required to be disclosed. Even if a person does not meet the threshold for filing a Tax Return, they still have to file the FBAR if they meet the FBAR threshold. Previously, the FBAR due on June 30th of each tax year, with no extensions being available. The FBAR filing date was changed a few years back to coincide with U.S. tax return filing due dates. As a result, the FBAR is due the same day that your tax returns are due. In addition, as provided in a February 2, 2018 FinCEN memoranda, the FBAR (otherwise known as FinCEN 114) is on automatic extension. If you are unable to locate the maximum balance of the account, you can identify that the maximum balance is unknown – but you should still include the account information on the FBAR.
What Are the Penalties For Not Filing an FBAR?
Unfortunately, the penalties for not timely filing the FBAR can be extreme (and even worse if you “Quietly Disclose”). The IRS has leeway to penalize you severely depending on whether the IRS believes you were willful or non-willful, and whether or not you can show mitigating factors to 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.
|U.S. Code citation||Civil Monetary Penalty Description||Current Maximum|
|31 U.S.C. 5321(a)(5)(B)(i)||Foreign Financial Agency Transaction – Non-Willful Violation of Transaction||$12,921 per account / year|
|31 U.S.C. 5321(a)(5)(C)||Foreign Financial Agency Transaction – Willful Violation of Transaction||Greater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D)|
Moreover, depending on the facts and circumstances of the noncompliance, the IRS may refer the matter for criminal prosecution – although typically criminal referrals are reserved for individuals of whom the IRS has significant information regarding tax evasion and other heightened facts beyond merely non-reporting of foreign accounts.
U.S. citizens eligible to use the Streamlined Foreign Offshore Procedures must:
(1) for each of the most recent 3 years for which the U.S. tax return due has passed, file delinquent or amended tax returns, together with all required information returns (e.g., Forms 3520, 5471, and 8938) and
(2) for each of the most recent 6 years for which the FBAR due date has passed, file any delinquent FBARs (FinCEN Form 114, previously Form TD F 90-22.1). The full amount of the tax and interest due in connection with these filings must be remitted with the delinquent or amended returns.
A taxpayer who is eligible to use these Streamlined Foreign Offshore Procedures and who complies with all of the instructions outlined below will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties, unless the examination results in a determination that the original tax noncompliance was fraudulent and/or that the FBAR violation was willful.