FBAR Amendment: If a person filed an FBAR (Foreign Bank Account Reporting Form aka FinCEN Form 114) incorrectly, the IRS procedures for correcting the FBAR can become much more complicated than they need to be (but not always). The rules will vary based on each person’s facts and circumstances.
For example, the if the balances were pretty accurate or there are just minor changes, it is probably not that big of deal.
But, if there were multiple accounts missing and/or significantly underreported values, the concern will be that just going and changing the forms without FBAR Amnesty may be considered a quiet disclosure.
Depending the types of accounts or assets you have abroad, you may have several other reporting requirements as well.
I Forgot a Few Small Accounts
If you simply forgot to include a few accounts on your FBAR, chances are there will not be any significant fines or penalties. Presuming that you did not include the account because maybe it was low value or dormant – chances are the IRS is not going to try and pounce on you for something like that.
In fact, if the only issue was the non-reporting of some small accounts (and there is also no unreported income) you may qualify simple delinquency procedures to get yourself into compliance.
I Forgot a Small Accounts and Interest/Dividends
The next issue that we come across often is when someone did not report certain accounts, but also did not report certain income associated with those accounts. As you can imagine, there is a pretty broad spectrum when it comes to this specific issue. Typically a person may have a few dormant accounts with less than a $100 total, and maybe a few dollars in interest income that was not reported to the IRS
For this type of individual, they should qualify for a possible penalty waiver under reasonable cause, or may consider entering the streamlined program, because the penalty will be relatively minor (aka, small account value means small penalty) – as the penalty does not include accounts that were properly reported.
Investment Accounts, Insurance, Pension
This is where it starts to get a little more gray. If someone was to look at the term FBAR, it is a fair assessment to say that it only requires foreign accounts, and, even just bank accounts. When someone hears the words Foreign Banks and Financial Accounts, oftentimes they will presume it means bank accounts in banks, and bank accounts in other types of institutions such as a credit union or something similar abroad.
Unfortunately, Bank Accounts are only one part of the equation, and it includes a whole slew of different accounts, such as pensions, investment products, mutual funds, ETF, certain foreign life insurance policies, etc. Therefore, at some point when a person learns that all of their other accounts should have been reported, what do they do now?
Again, it will depend on the facts and circumstances of the situation, but typically they will qualify for the streamlined or possibly reasonable cause presuming there was no issue of willfulness or reckless disregard.
I Knew (or Should Have Known) and Now I want to Report
This is a tough situation, and typically will always require submission to the traditional IRS Offshore Voluntary Disclosure Program (OVDP). That is because when the person files a FBAR, and intentionally does not include certain accounts, then there is an element of willfulness that is hard to escape.
In other words, the person knew there was something called a FBAR, took the time to file it, but then decided that they were intentionally or with reckless disregard not going to file certain accounts for one reason or another.
In this situation, if a person goes back and tries to amend, they might find themselves in deep trouble.
FBAR Audit Trigger
FBAR Audit Triggers are very common, and so are the number of people getting caught being dishonest.
FBAR Penalties Can Be Serious
Recently, the IRS has begun seriously cracking down on individuals they catch who knowingly failed to submit required foreign or offshore disclosures and/or or filed False or misleading FBARs, Form 8938, 5471, 8865 etc.
The best way to prevent offshore penalties is to enter into one of the approved IRS Offshore Voluntary Disclosure Programs before the IRS finds you, audits you, and penalizes you.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.