Foreign Bank Account Reporting (FBAR): Delinquent Consequences & Options
The IRS requires taxpayers to report foreign bank accounts with an aggregate balance over $10,000. If you don't report your accounts, you can face significant penalties, but don't panic — in cases of a simple oversight, you can often get back into compliance with little trouble.
To protect yourself, you need to understand the rules about foreign bank account reporting (FBAR). Ideally, if you're behind, you also need to take care of the situation before the IRS contacts you. Here is an overview of FBAR filing requirements and links to resources with more information.
What Is FBAR?
What does FBAR stand for? FBAR stands for foreign bank account reporting. You will also see this acronym used after the phrase Report of Foreign Bank and Financial Accounts. That's the name of the form you need to file.
How Do You File FBAR?
To report your foreign bank accounts to the government, you must file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Don't file this form with your tax return and don't send it to the IRS. Instead, file it online with the Financial Crimes Enforcement Network (FinCEN).
When Does FBAR Need to Be Filed?
The FBAR is due the same day as your tax return — April 15th of the year following the year the balance in your foreign accounts exceeded $10,000. But, every year, you have an automatic FBAR extension until October 15th. As long as you file by October 15th, your FBAR is on time.
What Information Do You Include on the FBAR?
When you file the FBAR, you will need your foreign account numbers, their highest balances during the year, and contact details for your financial institution. You should report all accounts that you have financial or signatory control over.
If the aggregate balance in your foreign bank accounts is over $10,000 at any time in the tax year, you must file FinCen 114 (Report of Foreign Bank and Financial Accounts). You can file this form online through the BSA E-filing system of the Financial Crimes Enforcement Network (FinCEN).
For a look at who needs to file, the type of foreign accounts affected, and other details, check out the FBAR reporting requirements page.
If you forget to file FBAR, you may be able to file without penalties before the IRS notices. Once the IRS contacts you about an unfiled FBAR, you typically must undergo an examination. The examiner will gather detail about your accounts and why you didn't file. Then, they will decide which penalties to assess. The examiner may just issue a warning with no penalties in some cases.
There are several ways to catch up on delinquent FBAR reports, but the filing process varies based on your situation. If you meet certain criteria, you can file as usual. You just need to note why you're filing late. You can generally avoid penalties as long as you have reasonable cause and aren't behind on other tax obligations.
In other cases, you may need to use the IRS's streamlined FBAR procedures. This is generally the best option if you have unfiled tax returns or unreported foreign income in addition to the unfiled FBARs. The process varies slightly depending on if you live in the United States or abroad.
Suppose you have committed tax evasion or are worried about criminal exposure due to wilfully not filing your FBAR. In that case, you may need to use the IRS's Criminal Investigation Voluntary Disclosure practice to catch up on delinquent FBAR. For more details on how to file delinquent FBAR, check out the above link.
FBAR penalties are some of the harshest penalties imposed by the IRS. There is no tax due with your FBAR, so you don't owe any back taxes if you don't file. But as of 2022, the IRS can assess non-willful civil penalties of up to $14,489 and willful non-filing penalties up to the greater of $144,886 or 50% of the account balances.
These penalties can be assessed per account or per unfiled FBAR form. Individual taxpayers with millions in their foreign accounts have been assessed penalties well into the millions. Learn more on the FBAR penalties page.
Appealing FBAR Penalties
You may have to appeal if you cannot negotiate a favorable agreement with the examiner working on your FBAR case. You can appeal both assessed and pre-assessed penalties. Keep in mind that they start to accrue interest once penalties are assessed. That is why it is often better to appeal pre-assessed penalties.
You can pursue litigation if the appeals case does not go your way. Right now, there are several cases between taxpayers and the government related to FBAR penalties and filing requirements. These cases are shaping the FBAR landscape.
Payment Options for FBAR Penalties
In some cases, FBAR penalties can exceed the balance in your foreign accounts. In other cases, the penalties may be up to 50% of the balance in your account, but if the penalty is based on an old account balance, you may not have the funds anymore.
Once the IRS assesses the penalties, the IRS expects you to pay them in full. But if you can't, you may be able to make arrangements on your FBAR penalties. Depending on your situation, the options can include payment plans, offers in compromise, hardship status, or penalty abatement.
In addition to the FBAR requirements, the IRS requires taxpayers to report specified foreign assets. This rule applies to slightly different assets than the FBAR, and it has a higher reporting threshold. If you have specified foreign assets over the threshold for your situation, you must file Form 8938. There are severe penalties for not filing this form.
Get Help With FBAR
The FBAR requirements can be complicated, and the stakes are high if you're under examination. Don't deal with FBAR on your own. Get help from a tax professional who is experienced with foreign bank account reporting requirements.
A tax professional can take care of unfiled FBAR, provide guidance through an FBAR examination, appeal FBAR penalties, or help you make payment arrangements on FBAR penalties. Use TaxCure to search for a local tax professional who can help you with FBAR today.