With More FBAR Examinations in the Pipeline, Are you Ready?

With More FBAR Examinations in the Pipeline, Are You Ready?

More FBAR Examinations Coming in 2024

While there are many different types of international information reporting forms that a U.S. Taxpayer may have to file to disclose their foreign accounts, assets, investments, and income, the FBAR (FinCEN Form 114), is still the most common.

The FBAR is used to report all different types of offshore accounts and securities, such as:

• • • Stock accounts

    • Mutual fund accounts

    • Business Entities

    • Trusts

    • Life insurance policies, and/or

    • Checking and Savings accounts

With the Internal Revenue Service recently announcing that they intend to increase the number of FBAR examinations in 2024 and beyond — especially for taxpayers who are high-income earners — taxpayers need to be cognizant of the issues involving FBAR examinations, how to prepare for an FBAR examination, and what options they have if they are currently out of compliance but seeking to get into compliance before they are under examination.

IRS Announced More FBAR Examinations Coming in 2024

As provided by the IRS

• • • “High-income taxpayers from all segments continue to utilize Foreign Bank accounts to avoid disclosure and related taxes. A U.S. person with a financial interest over a foreign financial account is required to file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of all foreign financial accounts is more than $10,000 at any time.

    • IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million. The IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.”

Have You Consistently Filed Timely FBARs?

The first thing that taxpayers with foreign accounts and assets should consider is whether or not they have been compliant with their previous years’ FBAR filing requirements. It is not uncommon for taxpayers to not have complied in all prior years, by filing the FBAR in some years and not others. Sometimes, it is as simple as the taxpayer did not meet the threshold for reporting in that year — but oftentimes it is because the taxpayer may have received incorrect information about the types of accounts that are reported and whether the threshold is $10,000 per account or $10,000 in annual aggregate total (the threshold is $10,000 in annual aggregate total, not per account).

Were Your FBARs Accurate?

For taxpayers who did previously (timely) file annual FBAR, the next question to consider is whether or not those forms were accurately filed. For taxpayers who are unable to obtain all of the information necessary to file, if they made their best value estimate based on reasonable information, then oftentimes this will be sufficient. But if the taxpayer missed reporting one or more significant accounts, then there may be an issue as to whether the FBAR is substantially compliant — which can lead to issues if the taxpayer is under examination.

Did You Previously Submit a Quiet Disclosure?

Some taxpayers who were not previously compliant with FBAR filing may have submitted a quiet disclosure in prior years to mass file returns or to begin filing forward in that year. Sometimes the taxpayer acts alone and other times they were recommended to do a quiet disclosure by a CPA or attorney. The IRS has let it known that if they discover the taxpayer submitted a quiet disclosure, they will seek full fines and penalties against the taxpayer — which in turn may become much more damaging to the taxpayer because it will turn what would have ordinarily been a non-wilful situation into willful noncompliance. Thus, Taxpayers who are out of compliance may want to consider speaking with a Board-Certified Specialist before taking any additional action. (Learn how to choose the right offshore disclosure lawyer).

If you Missed Filing FBAR, Why?

Just because the taxpayer did not file the FBAR — even if they are under examination — does not mean that they will become subject to penalties. There are various legitimate reasons why a taxpayer may have not filed the FBAR. For example, maybe their bank accounts were under $10,000 but they were not aware that foreign life insurance and pension plans are reportable. Additionally, it could simply be that the taxpayer was working with a tax professional who did not let the taxpayer know they were required to file an annual FBAR (professional reliance/reasonable cause). Either way, taxpayers should be careful to not be led astray by inexperienced counsel or fear-mongers — because typically these types of issues can be resolved.

Should You Get Compliant First?

For taxpayers who were out of compliance but want to get into compliance before they are subject to an FBAR examination, the IRS provides various FBAR amnesty programs that the tax mayor would qualify for to safely get into compliance before being under examination. This allows the taxpayer to make a proactive submission to the IRS and take the offensive as opposed to being under examination and being on the defensive.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and 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. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.