FBAR: Who Should File FinCEN Form 114 (Golding & Golding)

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FBAR (Who Should File & What if You Did Not Report FBAR?)

FBAR (Who Should File & What if You Did Not Report FBAR?)

FBAR (Who Should File & Did You File Timely)

The Internal Revenue Service has various different international tax and reporting requirements for US persons who have foreign accounts, assets, investments, and income. Out of all the different international information reporting forms required by the Internal Revenue Service, the FBAR (foreign bank and financial account reporting aka FinCEN Form 114) is one of the most important. In any year that a taxpayer has more than $10,000 in annual aggregate total — they may be required to file FinCEN Form 114 to report all of the foreign bank accounts and other financial accounts, including foreign pension plans, foreign investment accounts, foreign life insurance policies, foreign stock accounts come etc.  When it comes to reporting the FBAR, two of the most important questions we receive are:

      • Who should file the FBAR

      • What Happens if you Do not Report the FBAR Timely.

Let’s go through the basics of these two questions.

Who Should File the FBAR?

The FBAR is required to be filed by US persons in any year in which the annual aggregate value of their foreign accounts exceeds the value of the threshold, which is currently $10,000. It is important to note, that is not a per-account threshold, but rather the combined total value of all accounts. This is a very important distinction because many taxpayers (understandably) believe that they must only report accounts that are over $10,000 — which can lead to incomplete FBAR filings. In order to determine who is a US person, taxpayers can refer to the recent IRS FBAR Reference Guide publication 5569 which provides the following summary:

A “U.S. person” means:

      • A citizen or resident of the United States;

      • An entity created, organized, or formed in the United States or under the laws of the United States, any State, the District of Columbia, the Territories and Insular Possessions of the United States, or the Indian Tribes.

        • An“entity” includes but is not limited to, a corporation, partnership, trust, and limited liability company; or

      • An estate formed under the laws of the United States.

      • Disregarded Entities: U.S. persons that are disregarded entities for tax purposes may need to file an FBAR. The federal tax treatment of an entity doesn’t affect the entity’s requirement to file an FBAR. FBARs are required under a Bank Secrecy Act provision of Title 31, not under any provision of Title 26 (Internal Revenue Code).

What Happens if you Do not Report the FBAR Timely

When taxpayers fail to file the FBAR timely, they may become subject to extensive fines and penalties. There are two categories of FBAR penalties — Civil FBAR penalties and criminal FBAR penalties. Civil FBAR penalties can be broken down further into non-willful and willful FBAR penalties.  When it comes to willfulness,  generally the IRS can and will assess a 50% penalty on the maximum account value — and the penalties can be issued for multiple years — although the penalty typically maxes out at 100% value. When it comes to non-willful penalties, the courts are all over the board as to what is considered a violation. Some courts support the position that a taxpayer can be assessed the penalty of $10,000 per account, per year up to a total of 50% for the entire noncompliance —noting, that the $10,000 adjusts for inflation.  Other courts such as the appellate court in California in Boyd take the position that penalties are limited to $10,000 per year — up to the statutory maximum of six years, presuming that the Taxpayer went back and filed accurate FBARs.

Missed Prior FBAR Filing?

If a person failed to file FBARs in prior years, they are not out of luck. The US government has developed various international information tax amnesty programs, collectively referred to as offshore voluntary disclosure. Some of the more common programs include Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures –– but there are other options available as well.

International Tax and Offshore Compliance

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm today for assistance.