Do Foreigners Have to File the U.S. FBAR Each Year?
Do Foreigners File the U.S. FBAR Each Year?
The FBAR refers to FinCEN Form 114, which is an electronic form that is used to report foreign bank and financial accounts to the U.S. Government. When a U.S Person has ownership or interest in (or signature authority over) foreign bank and financial accounts — which in annual aggregate total exceeds more than $10,000 on any day of the year — they may have to file an FBAR to report the accounts — in addition to having to file their U.S. tax return. In general, the FBAR form is not overly complicated, and for taxpayers who are already in compliance the form is manageable — unlike other international reporting forms such as Form 5471 or 8621 that can become much more complicated to prepare. One of the most critical preliminary questions we receive about filing the FBAR is whether non-U.S.-born persons are required to even file the FBAR.
Non-U.S. Person with Foreign Accounts (6013(g))
The first thing to remember is that the FBAR filing is required by U.S. persons. Therefore, if a foreign national (who is not a U.S. person) has foreign accounts, then they are not required to report this on the FBAR unless they become a U.S. person. It is also important to note that if a taxpayer makes a 6013(g) election to be treated as a U.S. person for tax purposes — this does not necessarily mean that they are a U.S. person for FBAR reporting purposes.
Foreign Born U.S. Person
An individual does not need be born in the United States to have to file an FBAR. Rather, the person must be a U.S. person for tax purposes. This typically means that the taxpayer is a U.S. citizen, lawful permanent resident, or foreign national who meets the substantial presence test. Especially for taxpayers who are U.S. persons because they meet this substantial presence test, they only file the FBAR when their tax status deems them a U.S. person. Conversely, since U.S. citizens are always U.S. persons unless they expatriate, U.S. citizens are generally considered U.S. persons for FBAR filing purposes.
Accidental Americans
Taxpayers who are ‘Accidental Americans’ but are U.S. citizens are still required to file the FBAR even if they were born overseas and even if they have lived overseas their entire lives. In other words, the FBAR filing requirement is not (generally) based on where the U.S. citizen taxpayer resides but rather if the taxpayer is considered a U.S. person for tax purposes. It is important to note, that there was a recent case in which a Green Card Holder taxpayer was successful in showing that since they qualified for a treaty election to be treated as a non-resident alien under the U.S./Mexican tax treaty that they should not have been issued non willful FBAR penalties because they were not required to file FBAR in the first place. Presumably, the IRS will still challenge taxpayers who take this position, but it is important for taxpayers who make this type of treaty election to be aware of it.
Late-Filing Disclosure Options
If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them. *Below please find separate links to each program with extensive details about the reporting requirements and examples.
Streamlined Filing Compliance Procedures (SFCP, Non-Willful)
The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.
Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)
Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.
Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)
Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.
Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)
Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.
Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)
Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.
IRS Voluntary Disclosure Procedures (VDP, Willful)
For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).
Quiet Disclosure
Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs. Prior Year Non-Compliance
Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
