Technically speaking, there’s no such thing as late filing penalties for FBAR, unlike filing taxes. However, going past your due date may result in significant penalties.
Since the Internal Revenue Service (IRS) has become aggressive in going after foreign accounts and income, it is important to comply with this foreign bank account report procedure. Here’s what happens if you file an FBAR late as well as the delinquent FBAR submission procedures to save you the trouble.
Understanding the FBAR
Formally known as the Report of Foreign Bank and Financial Accounts, the FBAR is not a tax form. The report does not include computations and deductions on taxable income and assets Instead, it is a document submitted to the Financial Crimes Enforcement Network, through FinCEN Form 114. It covers different foreign financial accounts reported annually, which may include, but is not limited to, the following:
- Brokerage accounts
It also covers any other account you keep with a financial institution. The same goes for accounts handled or managed by an individual performing the same functions as a financial institution. Remember, some foreign assets might need to be reported on an FBAR and Form 8938.
When and How Should You File FBAR
The IRS explains that the FBAR is an annual report due April 15 of the following year. Account owners are given an automatic extension up until October 15 following the due date, without having to request an extension.
Exceptions and Extensions for FBAR Deadlines
Beyond this, the federal government can still offer additional extensions in consideration for natural disasters and other circumstances. This can be requested or you can wait for FBAR relief notices released by the government.
Certain employees and officers also receive extensions from the government. This applies to those who have signatures or other authority over certain foreign financial accounts, but with no existing financial interest, an extension is also granted by the government.
How to Regularly File FBARs
Filing your FBAR is commonly done through FinCEN’s BSA E-Filing System. Take note that this is filed separately from the federal tax returns. Also, you might have to report crypto on an FBAR.
Conversely, you can also file an FBAR through paper. If you prefer this option, you’d have to request an e-filing exemption first. This request is made through the FinCEN Resource Center. Once approved, they will send you a copy of the paper form. Once accomplished, you will then mail the form to the IRS. Remember that obsolete forms or printed FinCEN Form 114 are both considered invalid.
If you’re looking to have someone file your FBAR electronically for you, FinCEN Report 114a (Record of Authorization to Electronically File FBAR) is a prerequisite. This is not submitted anymore. However, you’d do well to keep a copy of this form in the event that FinCEN or the IRS requests it.
What Happens WIth Delinquent FBARs
If for any reason you fail to file your FBAR, there are no immediate penalties. However, it opens you to investigations and potential repercussions. To remain compliant, a US citizen must submit their FBARs for the current year as well as all previous years.
Generally, the IRS does not impose penalties for failure to file a recent FBAR, provided that these are properly reported on the tax returns with all corresponding taxes paid fully. The same goes for delinquent FBARs for citizens with no previous inquiry or income tax examination from the federal government.
However, if the IRS chooses to go after you, they can either impose a $10,000 penalty for non-willful violations, or 50 percent of the account value for willful violations.
Filing for the current year and missing the previous ones is called “filing forward,” and is illegal since it can be construed as a willful evasion in declaring previous FBARs. If you’re caught in this practice, there are penalties.
Penalties for Missed or Late FBARs
As for incomplete or late FBAR filing, determining the penalty is quite complex. Penalties can be classified into whether the IRS will be pursuing civil penalties or criminal penalties for your case. For civil liabilities unmet, this usually translates to fines or other forms of monetary penalties, such as requiring you to pay additional tax. It is also accompanied by warning letters from the agency, without criminal prosecution or investigation.
For criminal penalties, the IRS starts working with the Department of Justice or other pertinent agencies. This requires criminal investigation and could lead to prosecution, resulting in monetary penalties plus the chances of imprisonment. For example, if the courts determine willful failure to file FBAR or retain necessary records could land you up to five years in prison, a $250,000 fine, or both.
How to Prevent Delinquent FBAR Penalties
To prevent trouble, compliance is the best way. However, if you’ve missed the deadlines for FBAR filing, you can always follow the Delinquent FBAR Submission Procedures, as outlined by the IRS. You can file delinquent FBARs and set your record straight. You might also want to fix FBAR errors.
The IRS streamlined filing procedures usually include a formal statement explaining why you were not able to comply with the FBAR deadlines and filing your delinquencies electronically.
Additionally, there are FBAR Amnesty programs delinquent citizens can apply for. Each of these programs caters to particular circumstances, but successfully applying for amnesty reduces or even eliminates the odds of penalty.