FBAR Lawyers Guide to Late FinCEN 114 Filing (5 Tips)

FBAR Lawyers’ Guide to Late FinCEN 114 Filing

The FBAR (Foreign Bank and Financial Account Reporting) is one of those types of forms that many US Persons have never heard of and even when they have heard about it, they presume it does not apply to them (e.g., it is only for “offshore” accounts or the accounts “pre-date” US person status). Oftentimes, when the IRS refers to foreign accounts they use the term “offshore,” which may inaccurately connote that the filing requirements are limited to taxpayers who may have foreign accounts, assets, investments, or income in countries that may be considered tax havens (as opposed to other foreign countries that are not considered tax-havens). And, once taxpayers learn that they are out of compliance for prior-year non-reporting of foreign financial accounts on the FBAR, they will often find themselves entangled in a web of misinformation and fear-mongering. But, before anybody just goes off half-cocked and submits one or more previous years’ non-disclosed FBAR forms to FinCEN, it is important to take note of a few key facts.

Missed FBAR is Probably Not Criminal

When a person is out of compliance for not properly reporting their foreign bank and financial accounts on an FBAR form, usually their first initial reaction is that they did something criminal and they are going to go to prison. These fears are further exacerbated by the fact that there is an enormous amount of misinformation and fear-mongering online making taxpayers feel very vulnerable. Generally, most FBAR violations are not criminal and taxpayers do not go to prison for civil FBAR violations. A criminal FBAR violation is usually ancillary to other criminal tax and non-tax violations such as money laundering, tax evasion, structuring, and smurfing, and those can have significant consequences.

Missed FBAR Filings are Usually Non-Willful

Aside from the fact that failing to report a few foreign bank accounts is probably not going to land you in prison, chances are you are not “willful” either. While there is some ambiguity in determining whether a person was willful vs non-willful, there are lower threshold standards for willfulness that neither requires knowledge nor intent. Still, most people who missed their FBAR filing will qualify as non-willful.

The Rules Have Changed for FBAR Amnesty Programs

Although there are various different FBAR Amnesty programs available to assist taxpayers who were noncompliant with FBAR, the programs have changed over the past few years. For example, the IRS terminated the OVDP program – although they did expand the IRS Voluntary Disclosure (VDP) program to include both domestic and foreign noncompliance. The IRS also modified the delinquency procedures for matters involving more than just FBAR noncompliance, though foreign account penalties can still be avoided, minimized, or abated.

IRS Agents Do Have FBAR Discretion

Even if you are issued penalties for filing a late FBAR (or not filing the FBAR at all), IRS agents and examiners have FBAR discretion to reduce and/or abate penalties. And, if a taxpayer is unable to negotiate with the IRS Examiner to have the penalty reduced, they still have the opportunity for an appeal. And while they may not be able to go to tax court after the appeal, they can go to Federal Court to sue the US government and whether or not the Flora (pre-payment) rule is applicable is up for debate.

Quiet Disclosures are Bad

A Quiet Disclosure of FBAR occurs when a person seeks to circumvent one of the approved amnesty programs by simply submitting corrected prior year returns without any defense, or just filing forward. The Internal Revenue Service has made it clear that if taxpayers get caught doing a Quiet Disclosure, they may be hit with fines and penalties — including an IRS Special Agent Investigation which could lead to criminal ramifications. In other words, the Quiet Disclosure is simply not worth it.

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.