What is an FBAR?
Simply put, the FBAR is a reporting form for those who hold $10,000 or more in a foreign financial account.
*Important* $10,000 refers to aggregate balances of all your foreign accounts. So let’s say you have $5,000 in an account in India, $4,000 in an account in Hong Kong, and $2,000 in an account in the U.K., you have to report all of those accounts because the total is over $10,000.
“Willful” vs. “non-willful”
Willfullness is “whether there was a voluntary, intentional violation of a known legal duty”. Basically, did you intentionally not file your FBAR? If you are non-willful, it means you had no knowledge of this filing requirement. If you need assistance, we can represent you in front of the IRS to help prove non-willfullness. We know what to say, and what not to say.
What are the penalties of filing my FBAR late, or not filing at all?
There is no “late FBAR penalty”. There are only non-filing penalties, and the IRS can assess you those non-filing penalties if you file even one day late.
If it is determined that you were willful in non-filing, the penalty can be up to 50% of the account value the date the FBAR was due. There are different tiers of penalties. If your account is under $50,000, if the account is between $50,000 and $250,000, between $250,000 and one million, or over one million you will be assessed different penalties. The higher the account balance, the higher the penalty. The cap is 50%, but with the mitigation guidelines, you may actually be below that. Other factors can also affect the actual penalty amount such as the types and number of accounts you have; it’s a fact-sensitive determination.
The maximum non-willful penalty is $10,000 per occurrence.
How can the IRS prove that you’re willful?
The Internal Revenue Manual itself says that this is going to based on circumstantial evidence information. They do have some guidelines, but again, they will most likely have to do a case by case investigation. Some things they will look at:
- If you have completed an opt-out letter, they will be referencing that
- You will be interviewed, either in person or over the phone
- Did you check off Part 3 of Schedule B that asks “Do you have any foreign accounts?”, and “Do you have an FBAR requirement?” (Note: If you did not chek box, this does NOT automatically make you willful!)
Your state of mind is a hard thing to prove. We can help you prepare for the interview. You don’t want to say things like “I knew about the FBAR, I just couldn’t be bothered to fill it out”.
FBAR Appeals & FBAR litigation
Th IRS routinely applies applicable law incorrectly. You do have the ability to fight. Recently, the IRS got slapped down in a willful FBAR penalty case. Read about it here.
What if you can’t afford FBAR penalties?
The fact that many taxpayers can’t afford to pay FBAR penalties has not stopped the IRS from assessing huge amounts. The process is quite confusing. Our advice is for you to contact us about your case, if you find your FBAR penalties are something you cannot manage. The quicker you act, the better.
You are allowed to have attorney representation at the interview, and we highly recommend doing so. Every single word you say at that interview is important. Even if you’re non-willful, we’d still recommend it. Being innocent and having your words twisted around by the IRS to incriminate you for something you didn’t do is an actual possibility. Hiring an attorney does not make you look guilty, it makes you look smart.
FBAR filing vs. record-keeping penalties
Because it’s not bad enough to have penalties for not filing or incorrectly filing FBARs…let’s add some more penalties to the mix. You are also required to hang on to your records for 6 years after the due date of the FBAR. If, for instance, you are being audited and the IRS requests copies of your records, you best have them ready. The penalties for failing to maintain these foreign account records are the same as those for failing to file.
Do criminal charges exist?
Yes, they do exist. But it’s rare to actually be criminally charged for failing to file an FBAR. A jury would probably have a hard time criminally convicting someone simply because they didn’t fill out a form. Right now, worldwide income is a huge deal at the IRS; no one there wants to be the first to lose an FBAR court case. If you’re under the gun for tax evasion or some other issue, they may tack it on to the charges.
If an FBAR penalty assessment does not go your way, we can help you appeal.
Because the statute of limitation on assessing FBAR penalties can expire, the IRS is allowed to assess FBAR penalties against you before you have had the right to appeal. However, this doesn’t mean that you don’t have the right to appeal. You absolutely, 100% do. After receiving your 30-day letter (Form 3709), you (or your appointed legal representative) have 30 days to submit a written appeals request.
If you need assistance filling out your FBAR, or if you have questions or concerns about past FBARs you may have misfiled or not filed at all, contact us. We can help. Call us at 888-727-8796 or email us at info@irsmedic.com.
We invite you to review success stories and case studies of clients of ours.
