IRS Simple FBAR Manual for Timely Filing & Advice for Late Filers
Simple FBAR Manual for Timely Filing & Advice for Late Filers: The IRS has very strict rules for FBAR filing. While the FBAR is not the hardest international reporting form on the block, it can get a bit tricky. And, with the recent update as to the filing due date, and penalties for FBAR violations, filing a timely and complete FBAR is as important as ever. Therefore, we developed a simplified FBAR filing manual to assist you. If you have unreported offshore accounts, assets, or investments for prior years, you will require more formalized procedures under either the:
Simple FBAR Manual for Timely Filing
When a U.S. person has foreign accounts, assets and/or investments, they may have an IRS international reporting form requirement(s).
There are many different international reporting forms, with the two most common forms being: FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114) and FATCA Form 8938 (Foreign Account Tax Compliance Act).
If you do not timely report the foreign bank and financial accounts, you may be subject to fines and penalties — but you may qualify for IRS Tax Amnesty & Voluntary Disclosure to alleviate the penalties.
Advice for Late Filers
Technically, there is no “late-filed FBAR Penalty.” Currently, the FBAR is on automatic extension.
If you miss the FBAR deadline, and file the FBAR late — you are subject to the same potential penalties as if you had not filed the FBAR and should consider hiring an FBAR Lawyer to submit you to one of the voluntary disclosure programs.
Which Accounts are FBAR Reportable?
It is important that if you are a U.S. person with Foreign Accounts, that you remain in compliance with IRS compliance requirements, including FATCA (Foreign Account Tax Compliance Act) FBAR (Foreign Bank and Financial Account Reporting), and several other IRS statutes and regulations.
Reporting foreign accounts generally includes FBAR & FATCA disclosure of foreign:
- Bank Accounts
- Investment Accounts
- Stock Accounts
- Trust Accounts
- Business Accounts
- Life Insurance
- Provident Funds
- ETFs and Mutual Funds
- Cryptocurrency Accounts
Step-by-Step Offshore Account & Asset Reporting Manual
Golding & Golding have developed a Step-by-Step Offshore Tax Manual for IRS Reporting of Foreign Bank and Financial Accounts to help determine if you meet the IRS Threshold Filing Requirements for FBAR, FATCA, PFIC and more.
How to Prepare the FBAR
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.
First, Common Offshore Reporting Acronyms
These are the common acronym basics for non-attorneys, non-CPAs, and non-tax professionals
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.”
Financial Crimes Enforcement Network. It sounds much more evil than it actually is. FinCEN Form 114 is actually the technical term for FBAR.
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).
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.
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
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 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).
Golding & Golding (Board-Certified)
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
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 Golding & Golding Case Highlights
- 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 FBAR 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.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
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.
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. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.