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🔷Who Must File the FBAR?
A U.S. person must file an FBAR if they have a financial interest in or signature or other authority over any financial account(s) outside the U.S. and the aggregate amount(s) in the account(s) exceed $10,000 at any time during the calendar year.
🔷Who needs to file FBARs as a “US person”?
US Citizen
US Green Card Holder
Anyone who meets the substantial presence test.
Any entities created, organized, or formed in the United States or under the laws of the United States.
An estate formed under the laws of the United States
To meet the substantial presence test, you must be physically present in the United States (U.S.) on at least:
31 days during the current year, and
183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
o All the days you were present in the current year, and
o 1/3 of the days you were present in the first year before the current year, and
o 1/6 of the days you were present in the second year before the current year.
🔷FBAR Filing Requirement:
Fulfilling the Reporting Requirement: Filers report their foreign accounts by:
(1) completing and timely filing the FBAR electronically; and
(2) answering FBAR-related questions on federal tax and information returns such as: • Form 1040, Schedule B, questions 7a and 7b
🔷FBAR Penalties:
Non-Willful Penalties: For violations occurring after October 22, 2004, a penalty, not to exceed $10,000 per violation, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements. 31 USC 5321(a)(5)(B). In no event will the total amount of the penalties for non-willful violations exceed 50 percent of the highest aggregate balance of all unreported foreign financial accounts for the years under examination. *Civil penalty maximums be adjusted annually for inflation.
Willful Penalties: For violations occurring after October 22, 2004, a penalty for a willful FBAR violation may be imposed up to the greater of $100,000 or 50% of the amount in the account at the time of the violation, 31 USC 5321(a)(5)(C). *Civil penalty maximums must be adjusted annually for inflation.
🔷FBAR Voluntary Disclosure Practice is back:
FBAR voluntary programs existed in the past but have been gone for years. The IRS ended the Offshore Voluntary Disclosure Program in 2018, making it impossible for taxpayers who willfully did not report FBARs to come forward.
Now, the IRS offers a Voluntary Disclosure Practice (VDP). If you have willfully failed to comply with tax or tax-related obligations, submitting a voluntary disclosure may be a means to resolve your non-compliance and limit exposure to criminal prosecution.
You'd better consider why the IRS has reinstated the FBAR voluntary disclosure program. They know that many taxpayers know but keep ignoring the FBAR filing obligation.
See this link for more about the VDP:
If you are non-willful, you can use the Streamlined filing compliance procedures.
https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures
🔷I just forgot to file a FBAR. Is filing a quiet FBAR safe?
Delinquent FBAR is for taxpayers who reported all foreign income but forgot to file FBAR.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
If you have unreported foreign income and have failed to file FBARs on time, just filing a quiet FBAR may not be a good choice. Later years, the IRS may select you for audit through the existing audit selection processes, and you will receive full FBAR penalties for the quiet FBARs.
If you have income from foreign sources and reported all on your tax return but just forgot to report FBAR, reasonable cause may apply. However, if you did not report the foreign income, FBAR, and all other foreign-related forms, the IRS may see that you did not make a reasonable effort to report proper tax liability. If you receive a letter from the IRS or a foreign bank about the FBAR filing requirement, you keep ignoring it and have not reported an FBAR. The IRS may see that you willfully ignore the law. The IRS also uses the term “Willful Blindness”, for civil FBAR violations, which includes recklessness and willful blindness. If you use tax software like TurboTax and you ignore the question it asks, “Do you have an account in foreign countries?”. It may be seen as reckless.
🔷Reasonable Cause:
You may think that you have a good reason, reasonable cause, for not filing FBAR on time. Even if you think you meet the reasonable cause out of common sense, the IRS may disagree.
IRS says; The most significant factor in determining whether a taxpayer has reasonable cause and acted in good faith is the taxpayer’s effort to report the proper tax liability. For example, if a taxpayer reports amounts from an erroneous Form 1099, but does not know the amounts are incorrect, reasonable cause may apply. Also, an isolated computation or transposition error by the taxpayer may indicate reasonable cause and a good-faith effort. So, I just forgot it is not a good candidate for the reasonable cause.
🔷Many taxpayers rely on advice from a tax professional to avoid penalties.
In such a case, the IRS says relying on a tax professional must be “reasonable”. In that sense, taxpayers must provide their tax adviser with all the necessary information to evaluate the tax matter correctly. In other words, limited information about what the taxpayer tells the tax adviser to get the answer they want to hear is not considered “reasonable”. Of course, you need a good record showing that a tax professional gave you the wrong advice with your complete information.
🔷So what’s the difference between Non-Willful and willful?
The civil test for willfulness is whether a person either: (1) knowingly violated a legal duty; (2) recklessly violated a legal duty; or (3) acted with "willful blindness" by making a conscious effort to avoid learning about a legal duty.
🔷Then, who should I hire?
If you hire someone, it is better to check if they have representation rights or enough experience for the IRS representation. After you sent FBAR documents, the IRS may ask you for additional documents or even deny your claim to lower the penalties. The IRS may contact you directly at home. They can even ask your employer questions. Can your "accountant" help you in such a situation? Can they represent you before the IRS, or do they have good experience with IRS representation? Sayama Tax Office LLC has good experience working with many clients for the IRS Audit and has fully resolved their tax issues.
Please set a free 15-minute Initial Consultation: https://calendly.com/marysayama/30-min-new-meeting
The free consultation only contains a brief explanation of our service. If you have any specific tax questions, please ask for a Tax Consultation.
FBAR; Code: https://www.law.cornell.edu/uscode/text/31/5314
Comparison of FBAR & FATCA （Form8938）: https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements
FBAR Guidance: https://www.irs.gov/pub/irs-pdf/p5569.pdf
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