Delinquent FBAR Submission Procedures | Handling Late FBAR Filings

Did you forget to file an FBAR? Perhaps, you only recently learned that you have to report your foreign bank accounts. Or maybe you only thought the requirement applied to people who live in the United States and not to ex-pats. Regardless of why you’ve gotten behind, you can catch up on FBAR filings with the IRS’s Delinquent FBAR Submission Procedures. 

Designed to help people avoid penalties and other consequences, these procedures have strict application criteria. To help you decide if this might be the right option for you, we’ve put together this blog. Or contact us at the W Tax Group now to get help today.

Understanding FBAR Requirements

The Financial Crimes Enforcement Network (FinCEN) requires certain U.S. persons to report foreign bank accounts using the Foreign Bank and Financial Accounts Report (FBAR). This requirement applies if you are a U.S. citizen or resident alien. U.S. persons also include partnerships, corporations, estates, or trusts. 

You meet this reporting requirement if you own, have a beneficial interest in, or possess signature authority over one or more foreign financial accounts. These accounts include foreign financial assets such as bank accounts, securities, retirement accounts, and specific life insurance contracts. 

However, reporting these accounts is only necessary if their total value hit or surpassed the $10,000 threshold during the calendar year, even if it was only momentarily. 

To file your FBAR, complete and submit FinCEN Form 114 electronically via FinCEN’s Bank Secrecy Act (BSA) E-Filing portal. While you can file an FBAR yourself, we at The W Tax Group recommend working with a reputable tax professional to avoid some common pitfalls relating to foreign account disclosure. 

When Does an FBAR Filing Become Delinquent?

Taxpayers who meet the reporting requirements must file an FBAR annually on April 15, with an automatic extension to October 15. While an FBAR filing and your tax return have the same deadline, these filings are separate. If you meet the reporting requirements but fail to disclose your foreign accounts before October 15, your FBAR filing is delinquent.

The statute of limitations for FBAR violations is six years. In other words, the U.S. government has six years from the FBAR’s due or actual filing date to initiate enforcement action for non-compliance. During this period, the IRS can audit, assess penalties, or pursue legal action against those who fail to meet the filing requirements.

Consequences of Delinquent FBAR Submissions

The penalties for FBAR non-compliance are severe. But they vary depending on whether the violation is willful or non-willful.

Non-willful Violation

A non-willful violation is due to a good faith misunderstanding of the legal requirements relating to FBAR filings, negligence, a mistake, or inadvertence. In other words, delinquency is non-willful if you do not intend to evade taxes or conceal assets. The penalty for each non-willful violation is up to $10,000. This number is indexed to inflation—as of 2024, it is $16,117.

Willful Violation

The violation is willful if you knowingly fail to file an FBAR, submit false information, or evade reporting requirements. In this case, you may face a penalty of $100,000 or 50% of the relevant foreign account’s balance at the time of the violation, whichever is higher. This is also indexed to inflation, making the penalty $161,166.

Fraudulent Activity

Fraud involves willfully dishonest behavior intended to defraud the government, such as submitting false documents or lying about the existence of an account. This can lead to criminal charges. Individuals may face fines of up to $250,000 or up to five years imprisonment. 

Procedures for Resolving a Delinquent FBAR Submission 

Once your FBAR filing becomes delinquent, you have three options for rectifying the delinquency, coming back into compliance, and potentially avoiding penalties:

• A standard filing according to the FBAR filing instructions 
• An FBAR filing under the IRS Streamlined Filing Compliance Procedures
• An FBAR filing under the IRS Criminal Investigation Voluntary Disclosure Practice

The best option depends on why you didn’t file and what’s happening right now. Keep reading to figure out the best option for your situation or schedule a consultation with The W Tax Group to get personalized guidance today.

Standard Delinquent FBAR Submission

If the extension date for disclosing your foreign accounts has passed, and your filing is delinquent, you can submit the report online by following the FBAR filing instructions. However, this option is only available to you if:

• You have failed to submit an FBAR on time
• You are not under an IRS criminal investigation or civil examination
• The IRS has not contacted you about your delinquent FBARs

With this procedure, you will not be penalized for a late FBAR filing, provided that you correctly reported and paid tax on the income from your foreign accounts. 

Reasonable Cause

When filing your delinquent FBAR online, you must explain the late submission. While the IRS does not automatically audit late FBAR filings, the agency may select your FBAR for audit through its existing audit selection process. Should the IRS audit your FBAR and determine that your reason for filing late does not constitute reasonable cause, it may:

• Require you to follow a different submission procedure
• Assess penalties on your tax account

Reasonable cause for a late FBAR filing refers to situations where a taxpayer can demonstrate that, despite exercising ordinary care, they could not file on time. Health issues, natural disasters, unavailability of records, or delays by financial institutions are examples of reasonable causes. 

Streamlined Delinquent FBAR Filing Procedures

If you didn’t report income related to your foreign bank accounts, you may need to use the Streamlined Procedures to catch up on your FBAR. To explain, imagine that you earned interest from a foreign bank account with a balance over $10,000. You were supposed to report the interest as income on your tax return, and additionally, you were supposed to file an FBAR. 

However, you didn’t do either. Here is an overview of how to get back into compliance using this program:

Non-willful Conduct 

Taxpayers must certify that their failure to report foreign financial assets and pay all due taxes resulted from non-willful conduct.

Residency 

U.S. taxpayers residing abroad (Streamlined Foreign Offshore Procedures) and U.S. taxpayers residing in the United States (Streamlined Domestic Offshore Procedures) are eligible.

No IRS Civil Examination 

Taxpayers must not be under a civil examination by the IRS for any tax year, regardless of whether the examination relates to undisclosed foreign financial assets.

Valid Taxpayer Identification Number (TIN)

All returns submitted by taxpayers must include a valid TIN. This is generally a Social Security Number (SSN) for U.S. citizens and resident aliens. Those not eligible for an SSN must include or apply for an Individual Taxpayer Identification Number (ITIN) with their submission.

No Participation in OVDP for Relevant Years

Taxpayers who have submitted a voluntary disclosure under the Offshore Voluntary Disclosure Program (OVDP) after July 1, 2014, are not eligible for the streamlined procedures. Those who submitted before this date without a fully executed closing agreement may request streamlined penalty terms.

Prior Quiet Disclosures

Taxpayers who have previously made quiet disclosures by filing delinquent or amended returns without undergoing OVDP or its predecessors can still use the streamlined procedures. However, the IRS will not abate previous penalty assessments.

Filing an FBAR Under the Streamlined Filing Compliance Procedures

The Streamlined Filing Compliance Procedures consist of several specific steps you must follow to correct past non-compliance related to foreign financial assets. Here’s a general outline of these steps:

1. Determine eligibility: Review the eligibility criteria to ensure you qualify for the Streamlined Filing Compliance Procedures. This includes ensuring your actions were non-willful, you are not the subject of a civil examination by the IRS, and you meet residency requirements.
2. Certify non-willful conduct: Complete the required certification forms stating that your failure to report income, pay taxes, and file required FBARs was non-willful. This certification is a critical component of the streamlined procedures.
3. Prepare tax returns: If you have not filed your federal tax returns for the past three years or if previous filings were incorrect, prepare them, including all required information returns. You must also amend any returns for the previous six years that do not accurately reflect income from your foreign accounts. 
4. File FBARs: File delinquent or amended FBARs for the last six years if you did not report them. This step addresses compliance regarding foreign accounts.
5. Calculate tax and interest due: Calculate any additional taxes, interest, and penalties due as a result of the corrected returns and unpaid taxes from prior years.
6. Submit documentation: Submit the completed tax returns, information returns, FBARs, the non-willful certification form, and any other required documents to the IRS. Ensure you have a valid Taxpayer Identification Number (TIN) on all submissions.
7. Await IRS processing: After submission, the IRS will process the returns. There is no formal acknowledgment of receipt, and these submissions will not result in a closing agreement. However, the IRS may still select the returns you submitted for audit under its regular selection processes.

Criminal Investigation Voluntary Disclosure Practice

The IRS Criminal Investigation Voluntary Disclosure Practice (VDP) is a program for taxpayers who willingly failed to meet their tax obligations and wish to come forward to avoid potential criminal charges. You must initiate voluntary disclosure before the IRS starts any inquiries or suspects non-compliance.

1. Gather all necessary documents as detailed in the instructions in Form 14457. 
2. Complete Part I of Form 14457 to request preclearance and verify your eligibility.
3. If you receive a preclearance approval, you will have 45 days to submit Part II of Form 14457. This part includes detailed information about your tax situation, which is crucial for preliminary acceptance into the program.
4. Upon preliminary acceptance, the IRS will transfer your case to its civil division, where you must fully cooperate by providing all information and documents they request.
5. Once the civil division assigns your case to an examiner, they will contact you to request documents and information. Respond promptly to these requests to resolve the matter as soon as possible. 

If you miss the deadline for Part II, the IRS may kick your case out of this program. Try to be prepared so that this doesn’t happen or request an extension as soon as you can. The IRS may give one 45-day extension on a case-by-case basis.

Record Keeping and Best Practices

Ensure FBAR compliance by maintaining thorough records of all foreign bank accounts, including account statements, bank contacts, and related tax documents. Additionally, keep detailed records of all communications with financial institutions and any significant dates, such as when accounts were opened or closed. This meticulous recordkeeping is essential for compliance and can help facilitate the submission process.

Frequently Asked Questions

What are the consequences of failing to report an FBAR if I owe no additional taxes?

Even if you owe no additional taxes, failing to file an FBAR can result in non-willful penalties of up to $10,000 per violation unless you can demonstrate reasonable cause.

Can the IRS waive penalties for delinquent FBARs?

Yes, the IRS can waive penalties for delinquent FBARs if you show reasonable cause for the delay and properly report the income from the foreign accounts on your returns.

How does the FBAR filing requirement relate to Form 8938 (Statement of Specified Foreign Financial Assets)?

FBAR and Form 8938 serve similar purposes but have different reporting thresholds, reporting requirements, and financial asset definitions. If you meet the respective reporting thresholds, you may need to file both forms.

What steps should I take if foreign financial records are not available or incomplete?

If foreign records are incomplete or unavailable, document your attempts to obtain these records and disclose all available information. Consult with a tax professional to explore possible solutions.

How can I use the Delinquent FBAR Submission Procedures to correct filings from multiple previous years?

To correct FBARs from multiple years, use the IRS’s Delinquent FBAR Submission Procedures and ensure that you reported all income from foreign accounts. File the delinquent FBARs electronically and include a statement explaining why the reports are late.

Partner With a Leading FBAR Compliance Attorney

Dealing with FBAR can be complicated, and due to the high penalties, getting behind can be extremely stressful. Luckily, you don’t have to deal with this alone. At the W Tax Group, we have experience helping taxpayers in situations just like yours. 

Don’t let uncertainty about foreign account reporting weigh you down. To get help now, contact The W Tax Group today to schedule a consultation.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg