Navigating Foreign Bank (FinCEN 114) Filing Requirements

Navigating the Foreign Bank (FinCEN 114) Filing Requirements

Navigating the Foreign Bank (FinCEN 114) Filing Requirements

The FBAR Refers to Foreign Bank and Financial Account Reporting (FinCEN Form 114). The FBAR has been in existence for over 50 years. At Golding & Golding, we have counseled thousands of taxpayers in over 85 countries on matters involving FBAR reporting, compliance, IRS penalties, waivers, amnesty, and abatement. While the FBAR form itself is not overly complex, there are many nuances regarding the reporting, such as who has to report, when the filing is due, and what information is required to be included on the FBAR. We have written hundreds of articles on FBAR, and the focus of this article is primarily on understanding who has to report, what has to be reported, and what happens if you do not report (and how to fix it).

When is the FBAR Due?

The FBAR is due on April 15^th. In previous years, the forum was due on June 30th, but that was updated about 10 years ago. Even though the form is due on April 15, for the past several years, the FBAR form has been on automatic extension to October. Therefore, until the IRS changes this update, taxpayers have until October to file their annual tax return, and they do not have to file any extension form because it is on automatic extension.

What Foreign Accounts/Assets do I Report?

A common misconception is that only foreign bank accounts have to be reported on the FBAR, but that is incorrect. Many different types of accounts and assets must be reported on the FBAR, with some of the more common types of foreign accounts and assets to include bank accounts, investment accounts, securities accounts, mutual fund and ETF accounts, pension plans, and foreign life insurance policies.

What if I am Missing Foreign Account Information?

If a taxpayer does not have all of the information necessary to file the form, they should still file the form to the best of their ability — and they should file it timely (unless they fail to file in prior years, and then they may want to consider an amnesty program before submitting the current year). The key takeaway here is that it is not a test; a taxpayer does not have to score 100%. The goal is for the taxpayer to do their best through a reasonable and diligent search to obtain the information they can and then use that information to prepare and submit the form.

What if I Missed Reporting an Account on the FBAR?

If a taxpayer missed an account on the FBAR, it is typically not fatal; It depends on the number of accounts that were missed and the value of the accounts. For example, if a taxpayer missed a small account because it is dormant or inactive, that is not going to be a big deal. However, if the taxpayer missed reporting several accounts or even if it is a single account but it is a high-dollar account, then the taxpayer may want to consider their offshore disclosure options.

What if I Missed Filing the FBAR?

If you missed filing the FBAR, it is nowhere near as bad as the internet wants you to believe it is. This will also boil down to whether this was the first time the taxpayer was required to file the form or not; if the taxpayer filed the form in prior years and simply fell to file the current year; or if the taxpayer has failed to file the form in multiple years.

Can I File the FBAR Late?

While taxpayers can file the late form, oftentimes the IRS may penalize the taxpayer, and depending on the facts and circumstances, those penalties can be substantial. Therefore, if the taxpayer wants to file a late FBAR, they may want to consider one of the offshore disclosure slash amnesty programs. Depending on whether there is also unreported income and whether there are other international information reporting forms that were missed, it will determine which offshore disclosure program the taxpayer

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or 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.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

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. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.