If you have missed filing for a Foreign Account Bank Reporting (FBAR) for several years, your foreign accounts should be reported so you won’t need to pay late FBAR penalties. One way to catch up with your payments is through the Streamlined Filing Program or the Delinquent FBAR Submission Procedures.
What is a Foreign Account Bank Reporting (FBAR)?
A Foreign Account Bank Reporting is not a common need for most U.S. residents but not for those who have foreign accounts. An FBAR was formerly known as Report of Foreign Bank and Financial Accounts or the FinCEN Form 114. Some foreign assets have to be reported on an FBAR and Form 8938.
This report is needed to fight against tax evasion by letting US citizens report their offshore financial accounts or money and assets kept in a foreign bank. Instead of filing through the IRS, you can FBAR filings can be submitted to FinCEN or the US Treasury Department’s Financial Crime and Enforcement Network.
Who is Required to File an FBAR?
If you are a US Citizen, a Green Card holder, or a resident alien it is necessary for you to file an FBAR if the combined balance of your foreign financial account or your financial interest or signature authority exceeds $10,000 at any day on the calendar year.
- Financial Interest. Determined depending on who is the recorded owner or who holds the legal title.
- Signature Authority. It is having control over the distribution of assets while directly following the institution. In a simpler explanation, you have signature authority if you are a signatory for an employer’s foreign bank account. Thus, you will need to file an FBAR.
Foreign financial accounts include foreign retirement arrangements, bank accounts, and securities accounts that are located outside of the 50 states, D.C., tribal territory, and US possessions are considered as foreign financial accounts. FBAR reporting gets trickier when you have a joint account with a non-US citizen.
The FBAR filing deadline is the same as the due dates for filing your income tax return which is usually on April 15, with an extension until October. If you want to avoid penalties, make sure to always file on time.
How to File an FBAR through Streamlined Filing Compliance Procedures?
For those who have not done their FBAR filing for three years as the minimum, the streamlined program lets you file the late taxes and FBAR without penalty. This program allows you to file for your last three tax returns and until six FBARs. FYI we developed an entire guide to the IRS Streamlined Foreign Offshore Procedures.
However, this procedure is only applicable to Individual taxpayers and their estates and is available for those who are staying in and outside the United States. The eligibility requirements to avail of the procedure for both non-US residents or the Streamlined Foreign Offshore Procedures and US residents or Streamlined Domestic Offshore Procedures are as follows:
- Proof Taxpayer’s late filing was not willful.
For those who are either under the Streamlined Foreign Offshore Procedures or Streamlined Domestic Offshore Procedures, the IRS requires the act of not being able to file for any tax returns and reporting income including the FBAR filing, was due to non-willful conduct. Non-willful conduct according to IRS is conduct that is due to negligence, inadvertence, or mistake or conduct that is a result of a good misunderstanding of the requirements of law.
- IRS initiated a Civil Examination of Taxpayer’s Returns for any Taxable year.
For years that the IRS has initiated a civil examination or income tax examination for the returns of taxpayers for any taxable year, whether the examination is related to undisclosed foreign financial accounts, the taxpayer will not be eligible for the streamlined procedure. In relation to this, any taxpayer who is under investigation by the IRS Criminal Prosecution will also be ineligible for the streamlined procedure.
- Eligible Taxpayers who have Previously Filed Delinquent must Pay Previous Penalty Assessments.
For those taxpayers who are eligible for the streamlined procedures and have previously filed delinquent FBAR or amended tax returns due to an attempt to address U.S. tax and information reporting obligations in regard to foreign financial assets or the unreported foreign income (quiet disclosures) that are done outside of the Offshore Voluntary Disclosure Program (OVDP) or any programs previously launched can continue to use the streamlined filing procedures through the IRS procedures given. Even so, penalty assessments that were already made in regards to this will still be applied.
What are the Delinquent FBAR submission procedures?
For those whose tax returns are caught up but have failed to file the required FBAR on time, you can use the delinquent FBAR submission procedures to keep up with your delinquent FBARs. However, this is only possible if the IRS has not yet contacted or has started to investigate you due to these delinquent FBARs. But there are other ways to fix FBAR errors.
IRS Criminal Investigation Disclosure Practice
If you have unreported foreign financial accounts or have not paid tax returns, or are non-willful taxpayers who want to be assured that they will have no criminal liability or any penalties should think about participating in the IRS Criminal Investigation Voluntary Disclosure Practice and consult with a tax attorney or tax professionals that can give a piece of legal advice intended to help them and assist them towards any current legal developments that may occur.
However, a taxpayer who submitted an OVDP letter pursuant to OVDP FAQ 24 on or before July 01, 2014, will not be eligible for streamlined procedures. If you were able to submit before July 01, 2014, even when the OVDP closing agreement has not been fully executed, one may request treatment under applicable terms for the streamlined procedures.
General Treatment for Streamlined Procedures
Tax returns that are submitted under the Streamlined Foreign Offshore Procedures or Streamlined Domestic Offshore Procedures will not be automatically subject to audit but can be selected for audit under any existing audit selection processes that are applicable to any US tax return. It may also be subject to verification procedures that assure the accuracy and completeness of the submitted information against those that are from the bank and financial accounts.
The returns submitted through streamlined procedures are subject to examination, additional penalties, and criminal liability if needed.