Delinquent FBAR Submission: Get Back on Track

Do you have to file a delinquent FBAR submission because you forgot to file your FBAR? You’re not alone. Many taxpayers discover they’ve missed this crucial reporting requirement for their foreign accounts. But don’t panic! While the consequences of non-compliance can be severe, there are paths to get back on track. The key is to take action quickly and follow the proper delinquent FBAR submission procedures. 

Let’s walk through what you need to know to get compliant and put this FBAR issue behind you.

Key Takeaways:

• FBAR Compliance: U.S. expatriates must file FBAR if their foreign accounts exceed $10,000. This includes various types of accounts and ensures financial transparency with the U.S. government.
• Penalties for Non-Compliance: Non-filing can lead to severe penalties. Non-willful violations may incur up to $10,000 per year, while willful violations can be as high as $100,000 or 50% of the account balance per year.
• Relief Programs: The IRS offers streamlined filing procedures for non-willful delinquent FBARs, allowing for penalty-free submissions and reducing the anxiety of potential audits.
• Filing Steps: Gather financial records, complete FinCEN Form 114 for missed years, write a reasonable cause statement if needed, and review all information carefully to avoid further issues.
• Professional Help: Seeking expert tax assistance can simplify the process, ensure accuracy, and reduce stress, especially in complex situations.

Understanding Delinquent FBAR Submission

Welcome to a crucial discussion tailored for U.S. expatriates around the globe. As an American living abroad, you’re likely familiar with the myriad of tax obligations that follow you, no matter where you reside. Among these is the Foreign Bank and Financial Accounts Report (FBAR), a reporting requirement that can sometimes slip through the cracks of your financial planning. 

If you’ve found yourself behind on this obligation, don’t worry – you’re not alone, and the situation is often rectifiable. We understand that dealing with tax compliance can be daunting, especially from overseas. 

That’s why we’re here to guide you through this process with straightforward, helpful advice, steering clear of fear-inducing tactics. Let’s start by understanding what FBAR means for U.S. expats.

What is FBAR?

FBAR stands for Foreign Bank and Financial Accounts Report. Formally known as FinCEN Form 114, it is a report filed electronically with the Financial Crimes Enforcement Network (FinCEN), an agency of the U.S. Treasury Department. The primary purpose of the FBAR is to inform the U.S. government of American citizens’ or residents’ financial interests in, or signature authority over, foreign financial accounts. 

This includes foreign bank accounts, brokerage accounts, mutual funds, trusts, investment accounts, or other types of foreign financial accounts. 

Criteria for Filing 

As a U.S. expat, you are required to file an FBAR if:

• You have a financial interest in, or signature authority over, one or more accounts located outside the United States, and
• The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

It’s important to note that the $10,000 threshold is cumulative across all your foreign accounts and not per account. Also, the requirement applies even if you reside abroad and regardless of whether you have any taxable income. 

Understanding the FBAR requirement is the first step in ensuring financial compliance as a U.S. expat. Remember, it’s not just about fulfilling a legal obligation – it’s about maintaining financial transparency and staying in good standing with the U.S. government while you enjoy your life abroad.

Consequences of Not Filing FBAR

Understanding the potential consequences of a delinquent FBAR submission is crucial, but it doesn’t have to be a source of anxiety. The U.S. government can impose penalties for failing to file an FBAR, and these can vary based on whether the failure was non-willful or willful.

• Non-Willful Penalties: The penalties are generally less severe if you didn’t file an FBAR due to a misunderstanding or mistake. The IRS may impose a FBAR penalty of up to $10,000 for each year of non-compliance, but these penalties are often reduced or waived if you can show reasonable cause for the failure to file.
• Willful Penalties: If the failure to file is found to be willful, the penalties are more significant. They can be as high as $100,000 or 50% of the balance in the unreported accounts, whichever is greater, for each year of violation.

It’s important to approach this information with a clear mind. While the penalties can seem daunting, remember that there are procedures in place to help you rectify delinquent filings, which we will discuss shortly.

Who Needs to File FBAR

Many U.S. expats find themselves in a delinquent FBAR situation for a variety of reasons, most of which are non-willful. Common reasons include:

• Lack of Awareness: Many expats are unaware of the FBAR filing requirement, especially if they are new to living abroad or have not had significant foreign financial assets until recently.
• Misunderstanding the Requirements: Some expats might be aware of FBAR but misunderstand the criteria, such as the aggregate $10,000 threshold or what constitutes a reportable account.
• Overlooked in Tax Planning: Often, expats focus on their income tax returns and inadvertently overlook the FBAR filing, especially if they are managing their taxes without professional assistance.

Recognizing the reason behind your delinquency is a key step in addressing the issue and moving forward.

Delinquent FBAR Submission Procedures

The IRS offers a tailored solution for U.S. expats grappling with delinquent returns and unreported income: the Streamlined Filing Compliance Procedures. This amnesty program is particularly beneficial for those who don’t qualify for the standard delinquent FBAR submission due to the presence of unreported income. 

It’s designed to assist taxpayers, including foreign residents, who inadvertently failed to meet their reporting obligations. The streamlined program caters to individuals with non-willful failure in reporting foreign income and financial assets. 

It allows for submitting delinquent returns and unfiled FBARs without incurring harsh monetary or civil penalties typically associated with late filing. This includes a reprieve from audit selection processes and civil examination, reducing the anxiety associated with potential federal tax return audits.

What You Need Before You File

If 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, then you’re ready to file your delinquent FBARs. Here’s how to prepare:

• Gather Financial Records: Compile all necessary financial records for each foreign account you hold. This includes account numbers, bank names, and the highest balance of each account during the reporting period.
• Complete the FBAR Form: Fill out FinCEN Form 114 for each year you missed. You can do this online through the BSA E-Filing System.
• Write a Reasonable Cause Statement: If you’re filing under the reasonable cause criteria, prepare a detailed statement explaining why you failed to file on time. Be honest, clear, and concise.
• Review Everything Carefully: Ensure all information is accurate and complete. Errors or omissions can lead to further complications.

Delinquent International Information Return Submission Procedures

Taxpayers who have failed to file certain international information returns, such as Form 5471 for foreign corporations or Form 3520 for foreign trusts, may be eligible for the Delinquent International Information Return Submission Procedures. These procedures allow taxpayers to come into compliance without facing penalties if they have reasonable cause for their failure to file.

Seeking Professional Help for Delinquent FBAR Submission

While it’s possible to handle delinquent FBAR submissions on your own, seeking professional assistance can be invaluable, especially in complex situations. Here’s why:

• Expertise in Tax Law: Tax professionals specializing in expat tax issues are well-versed in the nuances of FBAR requirements and can provide guidance tailored to your specific situation.
• Navigating Relief Programs: Professionals can help determine the most appropriate relief program for your case and assist with the application process.
• Peace of Mind: Having an expert handle your delinquent FBAR submissions can alleviate stress and reduce the risk of errors.

Voluntary Disclosure Programs

Taxpayers with potential criminal exposure due to willful failure to file FBARs or report foreign income may consider entering into a voluntary disclosure program. These programs allow taxpayers to come into compliance while potentially avoiding criminal prosecution. However, they involve higher penalties than the streamlined procedures.

Avoiding Criminal Investigation

To avoid potential criminal investigation, taxpayers with delinquent FBARs should take action to come into compliance as soon as possible. Voluntary disclosure programs and streamlined procedures can help minimize the risk of criminal prosecution. However, it’s essential to consult with a tax attorney to determine the most appropriate course of action based on the specific circumstances.

Preventing Future Delinquency

Staying compliant with FBAR requirements doesn’t have to be overwhelming. Here are some best practices to ensure you remain on track:

• Annual Reminders: Set annual reminders before the FBAR filing deadline, which is typically April 15, with an automatic extension to October 15.
• Keep Accurate Records: Maintain detailed records of all foreign financial accounts, including account numbers, bank names, and maximum balances.
• Stay Informed: Tax laws and filing requirements can change. Keep yourself updated, especially if there are significant changes in your financial situation.

By adopting these habits, you can significantly reduce the risk of future FBAR non-compliance. The consequences of non-compliance, while potentially serious, are often mitigated by taking proactive measures. The IRS offers several amnesty programs to help you rectify past oversights without undue penalties, especially if your non-compliance was non-willful. 

Delinquent FBAR Submission: Final Thoughts

Delinquent FBAR submission can feel overwhelming, but you’ve got this. By understanding the requirements, exploring your options, and taking decisive action, you can get back on the right side of FBAR compliance.

The IRS understands that errors happen, and they’re willing to work with you to resolve them. However, the responsibility lies with you to initiate the process. Don’t allow apprehension or doubt to prevent you from confronting the matter head-on. By being proactive and addressing the issue promptly, you can find a suitable resolution and put the mistake behind you.

If you find yourself scratching your head, it’s time to call a professional who understands these issues well. With their expertise on your side, you’ll be able to confidently navigate the process and arrive at the optimal decisions for your distinct set of circumstances. For more information or to speak with a highly qualified tax professional, contact Dimov Tax today!