- 1 What if You Do Not File FBAR?
- 2 Reasonable Cause to Avoid FBAR Penalties
- 3 Delinquent FBAR
- 4 Non-Willful FBAR Penalties
- 5 Willful FBAR Penalties
- 6 Criminal Penalties
- 7 Late Filing Penalties May be Reduced or Avoided
- 8 Current Year vs Prior Year Non-Compliance
- 9 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 10 Need Help Finding an Experienced Offshore Tax Attorney?
- 11 Golding & Golding: About Our International Tax Law Firm
What if You Do Not File FBAR?
While there are many different international information reporting forms a US Taxpayer may have to file each year in order to report their foreign accounts, assets, investments, and income — the FBAR (aka FinCEN Form 114) is the most notorious. Up until early 2023, the IRS was in the habit of issuing penalties against noncompliant Taxpayers at $10,000 per account, per year – which could be catastrophic for many taxpayers with several unreported accounts over many years. Then, in 2023, the Supreme Court in the case of Bittner put a stop to the IRS’ penalty madness and limited non-willful FBAR penalties to $10,000 per year (adjusts for inflation). So, what happens now when a Taxpayer misses prior year FBAR filings?
Reasonable Cause to Avoid FBAR Penalties
When a Taxpayer can show their non-compliance was due to reasonable cause and not willful neglect, the IRS is not able to issue penalties. Therefore, the first consideration before making any representation to the IRS about the late filings is to determine if the Taxpayer can show reasonable cause.
At the time of this article, the IRS still offers the Delinquent FBAR Submission Procedures (DFSP). When a taxpayer qualifies for DFSP, the IRS offers a penalty waiver. It is important to note that the IRS does reserve the right to change the parameters of the program (usually to the Taxpayer’s detriment) as they did with DIIRSP.
Non-Willful FBAR Penalties
Non-Willful penalties may be issued on a per-year basis. In general, the IRS can go back six years to issue FBAR penalties.
Willful FBAR Penalties
The IRS has the authority to issue penalties upwards of 50% of the maximum value per year (up to 100% value of missed account reporting within the compliance period) when a Taxpayer is determined to have acted ‘willfully.’ There is no bright-line test to determine willfulness; it is based on the totality of the circumstance. And, while circuits disagree on the specifics, many have affirmed that willfulness can include reckless disregard and willful blindness.
Criminal Penalties (high fines and incarceration) can happen, but it is pretty rare and tends to only happen in situations where the Taxpayer also committed other tax or reporting violations, such as Fraud, Evasion, Structuring, or Laundering Money.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. Contact our firm today for assistance.