Have You Filed FBAR & 2022 Federal Income Tax Return?
While it is relatively common knowledge that US persons are required to file a US federal income tax return each year to report their worldwide income to the IRS — the FBAR rules are less well-known. The FBAR refers to foreign bank and financial account reporting and the form is filed electronically each year on FinCEN Form 114. The reason why FBAR filing is such an important aspect of offshore tax compliance is that if the form is not filed timely and properly it may lead to fines and penalties. And, penalties for FBAR non-compliance can be relatively brutal depending on the facts and circumstances of the situation. Further complicating FBAR compliance is the fact that the FBAR is not technically a tax form but rather a FinCEN Form and therefore taxpayers do not have the opportunity to go to tax court to dispute the outcome of the penalty –– although Taxpayers can pursue action in federal court and whether or not the Flora “pre-payment” Rule applies is up for debate. Here are a few important facts to consider:
FBAR Due Date on Automatic Extension
In order to extend the time to file a federal income tax return, the Taxpayer will usually file an IRS Form 4868 or otherwise pay estimated tax according to the requirements. Luckily, for the time being, the FBAR is still on automatic extension through October. Therefore, taxpayers are entitled to an extension of time to file the FBARr until October, and they do not have to file an extension form such as form 4868 or 7004 in order to obtain the extension.
The Form is not Too Difficult
While it may be a stretch to call the FBAR easy, it is not as complicated as many of the other international information reporting forms such as Forms 5471 and 3520–A. Therefore, if the only form a taxpayer has to file for the foreign accounts is the FBAR and they should consider themselves lucky since the other forms are estimated to take at least 30-to-40 hours to complete.
Prior Year Noncompliance to be Dealt with First
If a taxpayer has not properly reported the FBAR in prior years, they should be careful not to file forward, but rather go back and resolve their prior non-compliance first because if the Taxpayer does not resolve the prior-year noncompliance first and they were discovered by the IRS by way of audit or other examination, it may result in serious fines and penalties if the IRS believes Taxpayers knew they were supposed to go back and resolve the prior year matter first (see below).
Avoid Quiet Disclosures
What a person simply files forward or mass files prior FBARs without following one of the approved amnesty programs, it is referred to as a “disclosure. The IRS takes a hard line on choir disclosures and if they believe a taxpayer intentionally avoided the amnesty program and associated penalties, if any—the IRS has made it known that they will pursue serious penalties against the taxpayer including a potential criminal investigation by the Special Agents.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Golding & Golding specializes exclusively in international tax and specifically IRS offshore disclosure.
Contact our firm today for assistance with getting compliant.