FBAR Filing Requirements 2019 - IRS Deadline | Automatic Extension (Golding & Golding)

FBAR Filing Requirements 2019 – IRS Deadline | Automatic Extension (Golding & Golding)

FBAR Filing Requirements – IRS Deadline | FBAR Automatic Extension

FBAR Filing Requirements: As the IRS continues to ramp up enforcement on all matters “foreign” or “offshore,” it is important that you stay in compliance with FBAR Filing Deadlines. And, before you can stay in compliance, you have to “get” into compliance.

For many U.S. taxpayers, foreign account compliance involves the preparation of an annual FBAR, in order to report or disclose offshore accounts and certain assets that may be considered “Foreign Bank or Financial Accounts.”

We’re here to help.

FBAR Filing Requirements

It’s impossible for any individual, in any industry to make an intelligent decision based on analysis and not fear, until they understand the basics of what they’re dealing with.

Therefore, we have provided a very basic ten-step analysis to help you determine what your reporting requirements might be.

IRS FBAR Deadline 

The IRS FBAR Deadline is April 15, 2019, but coincides with filing your tax returns. The FBAR deadline is on automatic extension through October, 2019.

FBAR Automatic Extension

The FBAR is on automatic extension, which means you do not have to file any specific forms at the current time to apply for an extension for the FBAR — it is on “automatic extension.”

First, Common Offshore Reporting Acronyms

These are the common acronym basics for non-attorneys, non-CPAs, and non-tax professionals

FBAR 

Foreign Bank Account Reporting. But, since it includes more than than accounts, it is generally referred to as “Report of Foreign Bank and Financial Account Form.”

FinCEN 114

Financial Crimes Enforcement Network. It sounds much more evil than it actually is. FinCEN Form 114 is actually the technical term for FBAR.

FATCA

Foreign Account Tax Compliance Act. For individuals, it generally refers to either form 8938, which is part of your U.S. tax return, or when you receive a FATCA Letter from a Foreign Financial Institution (FFI).

PFIC

Passive Foreign Investment Company. This refers to certain investments that a person has oversees, and includes foreign mutual funds (where many unsuspecting U.S. Taxpayers get snagged). The PFIC calculation is very complicated.

Step 1 – Do You Have a Foreign Account?

Accounts include a laundry list of different items, including investment accounts, foreign life insurance, foreign retirement funds, and foreign provident accounts. You should make a list of ALL your accounts.

Step 2 – Do you Own the Foreign Account or have Signature Authority?

Depending on whether you own the foreign accounts, or just have signature authority over the account(s) will help determine where and how to report the accounts  — and whether it also needs to be reported on FBAR, form 8938 (interest in the account vs. signature authority) and other forms.

Step 3 – What is the Value of the Foreign Accounts?

You should use whichever exchange rate you prefer for the actual year in which you’re performing the analysis.  So if you’re analyzing for 2014 —  you would use 2014 exchange rates, not the current year rates.

Step 4 – Categorize the Foreign Accounts you have

You should separate the accounts by type, value, and whether you have ownership or signature authority over the account.

Step 5 – What Currency are the Foreign Accounts in?

In many countries, foreign financial institutions maintain multiple “currency sub-accounts” within the accounts, and the accounts may be in different currencies (common in Hong Kong and Taiwan)

For example, since the exchange rate for the HKD dollar and CNY are similar, but the exchange rate for the Taiwanese dollar (TWD) is much different, it is important to calculate the exchange amount properly to avoid over reporting or underreporting.

Stop!

As you begin aggregating your account values, it is important to know which forms you may have to file.

Do You File the FBAR?

If you have foreign accounts that you have either ownership or signature authority over, and the annual aggregate total in any given years, exceeds $10,000 in US dollars using that specific year’s exchange rate – you may have an FBAR Reporting Requirement.

Do You File FATCA Form 8938?

If you have foreign assets/accounts that exceed any of the Form 8938 thresholds, you may have a form 8938 filing requirement as well.

There are four main thresholds for individuals is as follows:

  • Single or Filing Separate (in the U.S.): $50,000/$75,000
  • Married with a Joint Returns (In the U.S): $100,000/$150,000
  • Single or Filing Separate (Outside the U.S.): $200,000/$300,000
  • Married with a Joint Returns (Outside the U.S.): $400,000/$600,000

PFIC (8621)

If you have foreign investment accounts, addition to the value, you also have to determine whether the investment is considered a PFIC.

This will help to determine what your tax liability will be, and whether you have to report the accounts on a form 8621 or not, and whether or not you have to perform an excess distribution calculation or not

Schedule B

Schedule B is not based on any value of the accounts. Question 7 simply asks whether or not you own foreign accounts, or if you have signature authority over foreign accounts.

Chances are that if you made it this far into our article, you probably have at least one foreign account.

Step 6 – Aggregate Your Account Values, By Type

Calculate the total amount of each type of account and whether you own it, or have signature authority over it to determine the total value.

Step 7 – Determine Which Forms You Have to File

Refer to the list of forms above to determine which forms you have to file (note: you may have other forms to file as well)

Step 8 – Did You Have to Report in Prior Years? – Very Important

Determine whether you have met the requirements in prior years as well, and review your prior returns to assess if you were in compliance during those prior years as well.

*Generally, the compliance period is 3-6 years.

Step 9 – Check if the Current Year is the First Year You Had to File

If this is the first year you have to file, you are in luck.

Presuming you are timely, as long as you give it your best effort and perform a diligent and reasonable completion of the forms, usually that will be sufficient.

Step 10 – You Missed Prior Year Reporting

If you come to the realization that you are out of compliance for prior years, then you should STOP. 

Before submitting for the current year you are required to go back and get into compliance for the prior years using one of the approved IRS offshore voluntary disclosure/Tax Amnesty Programs.

While the IRS is done away with OVDP, other programs are still available such as 

  • Traditional IRM Voluntary Disclosure
  • Streamlined Disclosure
  • Reasonable Cause

*If you decide to just submit without getting into compliance first, just keep in the mind that the IRS has indicated it will take a heavy hand against individuals who take this position, and it may result in significant fines and penalties.

**That is not an attempt to scare you, since there are probably plenty of people who do it anyways, and get away with it no problem (although we really don’t recommend it, since the downside is tough).

Beat the IRS to the Punch!

If you are out of compliance for not properly disclosing foreign income, accounts, assets, and/or investments — and are not under audit or examination — you may consider submitting to IRS Voluntary Disclosure (IRM, Streamlined or Reasonable Cause) in order to get into compliance.

5 Safe Ways to Get into IRS Offshore Compliance

There are 5 main versions of the program. Here are the 5 Main Options:

(New) Updated Traditional IRS Voluntary Disclosure Program

When OVDP (Offshore Voluntary Disclosure Program) ended back in September 2018, the Internal Revenue Service was unclear as to whether a New “Offshore” Voluntary Disclosure Program would be introduced. Instead of a “new program,” the traditional voluntary disclosure program was expanded.

You can use the disclosure program to submit FBARs for your Foreign Bank Accounts, FATCA, PFIC, along with your Domestic Income

Resource: Summary of the Traditional IRS Voluntary Disclosure Program

Resource: Golding & Golding’s 8-Step Guide to See if you Qualify

SFCP – IRS Streamlined Filing Compliance Procedures

IRS Streamlined Filing Compliance Procedures are a stand-alone “streamlined” version of the traditional OVDP. The “stand-alone” streamlined filing procedures were created in 2014 by the Internal Revenue Service.

The purpose of the procedures are to assist taxpayers who were noncompliant with offshore reporting requirements – but were also non-willful.

If the Taxpayer can certify under penalty of perjury of being non-willful, the IRS reduces the penalty structure, and even waives the penalty for applicants who qualify as foreign residents.

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Filing Compliance Procedures

SDOP – IRS Streamlined Domestic Offshore Procedures

SDOP is the Streamlined Domestic Offshore Procedures, and it is the program designed for for U.S. persons residing in the United States (or do not meet the technical “Foreign Resident Test”) 

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Domestic Offshore Procedures

SFOP – IRS Streamlined Foreign Offshore Procedures

SFOP is the Streamlined Foreign Offshore Procedures. These are the Procedures for U.S. persons residing outside the United States is referred to as the Streamlined Foreign Offshore Procedures.

Resource: Golding & Golding’s IRS Summary of IRS Streamlined Foreign Offshore Procedures

DIRP – Delinquency Procedures for Offshore & Foreign Accounts and Assets

If you do not have any unreported income resulting in having to amend your tax returns — and all you have is unreported foreign assets, accounts or investments with no unreported income, you may be in luck. In these instances, in which you do not otherwise need to file for traditional offshore disclosure or the Streamlined Filing Compliance Procedures — you may qualify for the Delinquency Procedures and avoid any penalties.

Resource: Golding & Golding’s IRS Summary of Delinquent International Informational Return Submission Procedures

RC – Reasonable Cause for Offshore & Foreign Accounts and Assets

Reasonable Cause may be an option for some taxpayers. Specifically, if you were completely non-willful in your failure to disclosure, and were unaware that there was any reporting requirement, then the thought of paying any penalty may sound absurd.

Resource: Golding & Golding’s Summary of IRS Reasonable Cause for Offshore & Foreign Accounts & Assets

Fixing Lesser Experienced Law Firm mistakes.

IRS Voluntary Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.

We know, because those cases usually end up on our door-step. 

Resource: Examples of recent cases we had to takeover from less experienced Attorneys can be found by Clicking Here (Case 1) and Clicking Here (Case 2).

IRS Offshore “Potential” Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

How to Find Experienced & Reputable Offshore Voluntary Disclosure Counsel

Nearly all the experienced Attorneys in this field will have 5 Main Attributes:

  • Board Certified Tax Law Specialist
  • Master’s of Tax Law (aka LL.M.)
  • Dually Licensed as an Enrolled Agent or CPA
  • Around 20-Years of Private Practice experience
  • Extensive Litigation, Trial and related high-stakes experience.

Why is This Important? Because People Can be Whomever They Want to be Online

And that is the problem.

In recent years, we have had many clients come to us after being horribly represented by inexperienced tax counsel. While we are sure it is a problem in many fields, it seems to run rampant in IRS offshore voluntary disclosure.

These Attorneys ‘manipulate’ their past legal experiences, such as working for the IRS —  to make themselves sound more experienced than they are. You later find that they never worked as an attorney for the IRS, or even in the offshore disclosure department.  

The IRS has nearly 100,000 employees, and just being one of them does not make an attorney qualified to be an effective and experienced offshore voluntary disclosure tax attorney specialist.

IRS Offshore Disclosure is complex enough for experienced practitioners who focus exclusively in the area of law, never mind relative newcomers who are trying to handle more than just offshore voluntary disclosure as part of their everyday tax practice.

International Offshore Disclosure Lawyer Fees – How Much are They?

As in life, you get what you pay for.

To get the best representation possible, you need an experienced Board Certified Tax Law Specialist, with advanced degrees and advanced certifications.

If you want to hire a newer private-practice attorney that just opened shop a few years ago, hoping to save a little money on fees,  where they sold you on some “over-hyped” Kovel Letter – you’re putting yourself at risk.

Those cases usually end up on our doorstep down the line after the attorney made significant mistakes on the submission (sometimes costing the client significant amounts of time and fees that could have been avoided)

Understanding How Tax Prep & Legal Fees Work in Offshore Disclosure

A summary of Offshore Disclosure Lawyer and Tax/Accountant Fees.

Offshore Disclosure — Flat-Fee, Full-Service

All Non-Willful cases should be Flat-Fee, Full-Service for both Tax and Legal.

*If you were willful in not submitting the FBAR, the submission and analysis is much different depending on whether the IRS has contacted you yet, if you are under investigation, etc. and you should speak with experienced counsel.

International Tax Lawyers - Golding & Golding, A PLC

International Tax Lawyers - Golding & Golding, A PLC

Golding & Golding: Our International Tax Lawyers practice exclusively in the area of IRS Offshore & Voluntary Disclosure. We represent clients in 70 different countries. Managing Partner, Sean M. Golding, JD, LL.M., EA and his team have represented thousands of clients in all aspects of IRS offshore disclosure and compliance during his 20-year career as an Attorney. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo and various Law Journals nationwide.

Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
International Tax Lawyers - Golding & Golding, A PLC