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FBAR Filing (2019) – Steps to Filing the FBAR (Foreign Bank Accounts)

FBAR Filing (2019) - Steps to Filing the FBAR (Foreign Bank Accounts) (Golding & Golding, Tax Specialist)

FBAR Filing (2019) – Steps to Filing the FBAR (Foreign Bank Accounts) (Golding & Golding, Tax Specialist)

FBAR Filing (2019) – Steps to Filing the FBAR (Foreign Bank Accounts)

For many people, it is not until several years after their first Report of Foreign Bank and Financial Account form was due, that they realized they had a requirement to file an annual FBAR.

Common Questions about FBAR Filing:

  • When is the FBAR Due?
  • Which accounts go on an FBAR?
  • What If I never filed an FBAR?
  • What are FBAR Penalties?
  • Will I go to jail?
  • How Can I get out FBAR Trouble?

FBAR Filing

One a person realizes that they have an FBAR Filing requirement via the IRS and FinCEN (Financial Crime Enforcement Network) to disclose information about their their foreign accounts (assets, income and investments) to the U.S.Government for several prior years, fear and anxiety typically starts to set in.

Annual FBAR filing is important for any U.S. Person who meets the threshold requirements for Filing.

A Guide to FBAR

It is normal to be afraid of the unknown.

This is especially true when dealing with government bodies, and even more so when the government body consists of either the IRS or the Financial Crimes Enforcement Network (FinCEN).

FBAR (Step-by-Step) How to File FinCEN 114

While we always recommend using a tax professional when submitting forms to the IRS, we understand many of you want to do it yourself. This guide is intended to provide you the basics of reporting. It is not intended for you to rely (or your tax professional) in actually filing the form. The summary is basic, and there are many other factors that may impact your specific filing, especially if it is a late filing.

Step 1 – Are you a U.S. Person?

The form must be filed by U.S. persons. In order to confuse you, the IRS does not define US person to mean the same as U.S. Citizen. A U.S. person (individual) typically falls into three categories: U.S. Citizen, Legal Permanent Resident, Foreign National who meets the IRS Substantial Presence Test (typically individuals on H-1B Visa, L-1 Visas, and E-2 Visas – although it is not a requirement to have one of these Visas).

If you are a US person, then you move onto step two.

Step 2 – Do You Meet the Threshold Requirements?

The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does that total amount exceed 10,000? If it does, then you have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.

Step 3 – Identify What is an Account

This is one of the more difficult parts of the job. That is because when a person thinks of financial accounts, they typically think of a “Bank Account.” It makes sense, since the word “Bank” is included directly in the FBAR definition. Therefore, many people (understandably so) will only focus just on bank accounts. Unfortunately, you have to include all financial accounts unless it is otherwise excluded (and there are only a few exclusions).

Some examples of other accounts include:

  • Stock accounts that have an Account Number
  • Private Pension Accounts
  • Investment Accounts
  • Foreign Mutual Funds and ETF Accounts
  • Foreign Life Insurance that has a Surrender Value

Step 4 – How Many Accounts Do You Have?

This is an important question, because if you have more than 25 accounts then you do not have to list all of the accounts on the actual form. Rather, you maintain your own records so that the IRS contacts you on a future date, you will have that information available.

Like most people, if you have less than 25 accounts then you would report all the accounts on the FBAR. It does not matter if your account has a zero balance, and it does not matter if the account was “dormant.” If the account is open and you are listed on the account, you have to report it.

Step 5 – What is Your relationship to the Account?

There are different sections of the FBAR. The sections are broken down into three main categories, which include ownership of the Account, co-ownership or joint ownership of the account, and signature authority and/or no monetary interest in the account.

The latter category typically includes people who may have been included on the account in emergency when a parent or elderly individual is getting on age. Also, if you are an employee and you have signature authority, that is included as well.

Step 6 – Categorize the Different Accounts

It is important that you prepare separate categories to identify each different type of account. That is to make sure that, for example, you do not report an account you have signature authority in this section that is labeled account ownership, because then the IRS and U.S. government will believe that the money listed is your own money — as opposed to money for which you may have no ownership over.

Step 7 – Determine the Maximum Balance

You are not required to search for the holy Grail of maximum balances. In other words, you should do the best you can. If you have bank statements for each month, then you would use each month statement to determine what the maximum value is. Likewise, if you have a passport account passbook account and you only get it updated when you enter the bank, then you will have to use the best value you can.

Thereafter, make sure you have identified the maximum balance available for each account.

Step 8 – Use the Exchange Rate

You are not required to use any specific exchange rate, but it has to be reasonable. Both the Department of Treasury and the IRS each publish their own annual exchange rates and feasibly, either exchange-rate would be okay to use.

It is important to make sure that you use the respective exchange rate for the year at issue. Sorry for those of you with euros, rupees or rubles who want to use current exchange rates for prior years.

If you are submitting to one of the offshore disclosure programs or a reasonable cause statement and have to go back six years, then you will have to use the rate that was available six years ago and not today’s rate for filing prior forms.

Step 9 – Complete the FBAR

The FBAR is a relatively simple from a preparation standpoint. In other words, for each account, you will identify the name of the institution, the address and the maximum balance. There’s not much more needed beyond this information.

If you are unable to access the maximum balance or even come up with your best estimate, you can mark off maximum balance unknown for each account of which this is applicable.

Keeping in mind, that the more you marked off “maximum balance unknown” the higher the chance that the FBAR might be further scrutinized. If you are in this type of situation, please be sure to speak with an experienced Offshore Disclosure Lawyer first.

Step 10 – Filing a Late FBAR(s)

At our International Tax Law Firm (Golding & Golding), offshore disclosure is all we do, and this includes Late FBAR Filings, and FATCA Compliance.

Filing a late FBAR outside of the offshore disclosure programs is typically considered a Quiet Disclosure and can land you in some real trouble. If you happen to have zero unreported income (that means zero unreported income from abroad and not zero tax liability) you may be able to qualify for the delinquency procedures, which results in a penalty waiver and a relatively simple submission procedure.

If you have any unreported income, you can still make a reasonable cause submission but it is different. Most individuals prefer to enter one of the approved programs such as streamlined filing compliance procedures or traditional OVDP — you may have multiple options available to you.

Depending on which program you qualify for, and/or which program you prefer to enter, you may qualify for reduced penalty for even a penalty waiver.

We do not recommend making any submission to the Internal Revenue Service regarding any foreign or offshore accounts without at least speaking with an experienced offshore disclosure lawyer first to evaluate and assess your facts.

FBAR Amnesty Options

It is important to keep in mind that oftentimes, an individual can submit to one of the amnesty/offshore voluntary disclosure programs, and safely bring themselves into compliance without much issue.

Don’t Try to Sneak Around IRS Disclosure Laws

Instead of taking steps to legally get into compliance, some individuals will try to secretly submit their information to the IRS while making the least amount of noise – hence the name “quiet disclosure”

What is a Quiet Disclosure?

A quiet disclosure occurs when a person knowingly retroactively files past FBAR without properly alerting the government authorities. In this particular area of law, the proper authorities are FinCEN and the IRS.

While we understand there is an inherent fear factor in submitting past FBARs through approved procedures and dealing with potential IRS fines and penalties, if you just start filing timely FBARs going forward — that is also considered a quiet disclosure.

Why is That Also Considered a Quiet Disclosure?

It is a quiet disclosure, because it is considered an intentional omission. In other words, you know you have a requirement to go back to file the past forms and properly get into compliance, but instead of filing the past forms you opt to just go forward and file forms in the current year and subsequent.

By doing this, you are intentionally omitting the filing of past forms, which is a form of Quiet Disclosuire

Will I Get Caught?

There is no knowing whether you will get caught or not. That is because the FBAR is not filed directly the IRS; rather it is being separately through the FinCEN website.

What are the Risk Factors For Getting Caught?

Here are a few easy ways the IRS can cross-check your information and determine whether you have intentionally filed the FBAR improperly:

You file the IRS Form 8938 going forward

For many people, in addition to having to file the FBAR, they also have to file a form 8938. This is a FATCA Form (Foreign Account Tax Compliance Act).  It is filed with your tax return and asks very specific questions for each account or asset.

Specifically, it will ask if you opened the account this year. If you put “No,” that is a very easy way for the IRS to know you should’ve been filing reporting forms in years past. If you put yes, then you are really digging yourself into a much deeper hole – and closer to a criminal investigation.

FATCA Reporting from a Foreign Financial Institution

More than 300,000 Foreign Financial Institutions are actively reporting the names of millions of US account holders worldwide who have foreign accounts. Therefore, the IRS may already have your information – even if they haven’t acted on it yet — which is very easy for them to cross-check your information and determine that you have had this account open for many years.

Your CPA gets busted

These days, CPAs are under increased scrutiny from the IRS. If you are working with a CPA who then gets in trouble with the IRS, then none of the information you discussed with the CPA is considered confidential, and you are at much greater risk that the IRS will learn that you may have intentionally/willfully/recklessly failed to comply with proper disclosure/amnesty procedures.

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Recent cases we had to fix after taking over from less experienced counsel that flubbed the case can be found by Clicking Here (Case 1) and Clicking Here (Case 2).

*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS 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.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.