IRS Provides Penalty Relief for Delinquent FBARs
The Foreign Bank Account Report (“FBAR”), FinCEN Form 114, annual deadline of June 30 is rapidly approaching. This form is required to be filed by U.S. persons who have a financial interest in or signature authority over a foreign financial account located outside the U.S. or an account maintained with a branch of a U.S. bank physically located outside the U.S., and the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the year. For this filing requirement, a U.S. person includes, but is not limited to, a U.S. citizen or resident, corporation, partnership, limited liability company, trust or estate.
While these are not new requirements, each year more taxpayers become aware of their filing obligation. In some cases taxpayers realize that they not only have a current year filing obligation, but they had previous year(s) filing requirements. The IRS has provided procedures for filing delinquent reports without penalty for those that do not use the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures.
The maximum civil penalty that will be imposed for violating the FBAR filing requirements is $10,000, unless the taxpayer willfully failed to file their FBAR in a timely manner. In the cases of willful failure, the penalty can be the greater of $100,000 or 50% of the balance in their unreported bank account(s) for each year they fail to file their FBAR. The penalties are ultimately at the discretion of the IRS, but they are restricted to these guidelines.
Taxpayers who have not filed and are not under civil examination or a criminal examination by the IRS, and have not already been contacted by the IRS about a delinquent FBAR filing, should file their delinquent reports as quickly as possible. In order to do so, the report should be filed electronically with an attached statement of the reason for the late filing.
As a U.S. person, you are required to report your worldwide income on your annual tax return whether or not the income is earned from U.S. sources. This includes income generated from the accounts that are required to be reported on the FBAR. The IRS will not impose a penalty for the failure to file the delinquent FBAR if:
- Income from foreign financial accounts that are reported on the delinquent FBARs are properly reported and taxes are paid on your US tax return.
- You have not previously been contacted regarding an income tax examination or request for delinquent returns for the years for which the delinquent FBARs are submitted
If you have determined that you are required to file a current or prior year FBAR, or you are uncertain whether you are or will be required to file, please contact a WithumSmith+Brown professional, a member of International Services Group or email us at [email protected].
To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
