The Report of Foreign Bank and Financial Accounts — more commonly known as the FBAR — is an annual reporting form issued by the Financial Crimes Enforcement Network, and is required to be completed by anyone holding over $10,000 in foreign financial accounts. When taxpayers file their on time, there shouldn't be any issues of note. However, when left unfiled, the consequences can be devastating. For US expatriates who have reported all of their foreign-sourced income, or for those who didn't have any foreign income to report, the IRS has made the delinquent FBAR submission procedures "relatively" straight-forward and "relatively" easy to understand.
According to the IRS, the filing of delinquent FBARs is for those taxpayers who:
- Have not filed a required FBAR;
- Are not under "civil examination or criminal investigation" by the IRS; and
- Have yet to be contacted by the IRS about the missing FBARs.
That at least is fairly easy to comprehend. But here's where things get ugly – this is only true for taxpayers who do not have any unreported income in the last three years. To clarify, unreported income would not necessarily be the information of foreign accounts that is supposed to be reported via an FBAR, but would instead be the inclusion of foreign income for your tax returns. Things get complicated in situations where there is no unreported income in the last three years, but there is unreported income in any any of the three years prior to those.
Delinquent FBAR Submission Procedures
Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:
- Have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1).
- Are not under a civil examination or a criminal investigation by the IRS.
- Have not already been contacted by the IRS about the delinquent FBARs.
The FBAR instructions state you need to follow these steps to resolve delinquent FBARS:
- Review the instructions.
- Include a statement explaining why you are filing the FBARs late.
- File all FBARs electronically at FinCEN.
- On the cover page of the electronic form, select a reason for filing late.
- If you are unable to file electronically, contact FinCEN's Regulatory Help line at 1-800-949-2732 or 1-703-905-3975 (if calling from outside the United States) to determine possible alternatives to electronic filing.
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.
If you need assistance with a misfiled or unfiled FBAR , contact us. For answers to common FBAR questons, click on the box below.