What is the FBAR Late Filing Penalty?
FBAR Late Filing Penalty: The IRS penalties for not filing a timely and complete FBAR can be significant. The Internal Revenue Service require the FBAR to be filed timely in accordance with offshore account, asset & investment reporting requirements. The FBAR late filing penalty can be severe, but there are various amnesty programs in place. If the FBAR is filed late, untimely, or incomplete, the Internal Revenue Service may issues fines and penalties. The penalties may include criminal and civil FBAR penalties.
The Civil FBAR penalties may be broken further down in non-willful & willful penalties.
FBAR Amnesty and voluntary disclosure may help to limit and avoid penalties
We will summarize the FBAR late filing penalty, and how to protect your foreign accounts.
Filing Late Foreign Accounts
It is important to stay in compliance, so that you can protect your foreign accounts. The U.S. has entered into FATCA Agreements with over 110 countries. These agreements facilitates cooperation amongst different countries, and allows for reciprocal reporting and enforcement.
From a U.S. Tax and Reporting perspective, Offshore Accounts means any accounts outside of the United States. It does not need to be in an Offshore Tax Haven such as the Caymans, Bahamas, or Bermuda to be Offshore. In other words, accounts in Japan, Korea, and India are also considered “Offshore” (aka Foreign Accounts or Accounts Abroad).
FBAR (FinCEN 114)
This is the Report of Foreign Bank and Financial Account Form. It is required for U.S. Person with more than $10,000 in annual aggregate total in foreign accounts on any given day of the year. This is filed separately from your Tax Return.
This is the process of filing your FBAR directly on the BSA website.
BSA and BSA E- Filing
Refers to the Bank Secrecy Act. While it sounds very “Cloak and Dagger,” it’s not – it is the same site whether you have accounts in Switzerland, Cayman Islands, Bahamas, Japan or India.
The threshold for having to file the FBAR form is when a person has ownership, co-ownership or signature authority over an annual aggregate total of foreign accounts, exceeding $10,000 on any given day of the year.
FBAR Accounts include much more than bank accounts. They include accounts, such as :
- Investment Accounts
- Pension Accounts
- Retirement Accounts
- Foreign Life Insurance
- Foreign Mutual Funds and ETFs
- PFIC Accounts
- Business & Corporate Accounts
FBAR Delinquency means that you did not properly file your FBAR timely.
Foreign Account Penalties
Foreign Account Penalties can range from 0 to 100%, depending on whether they were willful or non-willful.
While the IRS will not provide a concrete “test,” it is basically a Totality of the Circumstances Test, which may result from either an:
- Intentional Misrepresentation
- Intentional Omissions
- Reckless Disregard
Essentially, it means you are simple ‘not willful.” You can thank the IRS for that wonderful definition…
How are Offshore Account Penalties Calculated>
The penalties are tough. They range as follows:
Non-Willful FBAR Late Filing Penalty
If a taxpayer’s failure to file the FBAR was non-willful, then chances are the taxpayer may be in a position to have a reduction or elimination of penalties. If the taxpayer was non-willful, then that means the taxpayer did have any intent, malice or fraud in failing to comply with FBAR filing requirements — rather, the taxpayer is simply unaware of the requirement to file the FBAR.
Presuming that there was additional income from overseas that the taxpayer did not report and the taxpayer was under examination before the taxpayer had an opportunity to enter the IRS streamlined program, there are four levels of penalties that the IRS could issue:
The IRS has the authority to waive penalties and instead issue a warning letter.
The IRS has the authority to issue one $10,000 penalty for all the accounts during the entire audit period.
$10,000 Annual Penalty
The IRS has the ability to issue a $10,000 penalty for each year that the taxpayer did not file and FBAR. For example, if the audit period is three years, then the IRS could issue penalties in the amount of $30,000.
$10,000 per account/per year
If the IRS agent wants to – even though the taxpayer was non-willful – if the circumstances require it the IRS agent can penalize the taxpayer $10,000 per account, per year for the entire audit period.
**This is one of the key reasons why it is important that a taxpayer does not speak directly with the Internal Revenue Service regarding these types of international tax issues and retains an experience international tax lawyer.
Willful FBAR Late Filing Penalty
If a person’s failure to file the FBAR was willful, which generally means intentional — the stakes are much higher, and the penalties are much more severe. If a person intentionally failed to file their FBAR, it generally means they also intentionally failed to report their offshore income – which is a form of tax evasion and tax fraud.
The United States taxes individuals on their worldwide income; that means the United States does not care where you earned your income at or if it is not the type of income which is taxed in the source country, you must pay tax on it. For example, if you reside in the United States and earn $10,000 overseas in interest income (even if it was earned in a country that does not tax passive income) you are still required to pay tax on that money in the United States.
*Although, if you already paid tax in a foreign country already you may be entitled to a Foreign Tax Credit.
**In addition, if you sold a home in a foreign country and earn long-term capital gain or short-term capital gain, even if you do not have to pay capital gains in the foreign country, you have to report it on your US tax return as well. The intentional failure to report can have very serious consequences.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Streamlined Case Highlights
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.