Understanding the FBAR Form is Key to Successful FBAR Filing

Understanding the FBAR Form is Key to Successful FBAR Filing

Top FBAR Facts to Help Guide FinCEN Form 114 Filings

While many different types of international information reporting forms may be required by US taxpayers who have foreign accounts, assets, investments, and income, the FBAR (FinCEN Form 114) is the most common and well-known. That is because unlike many of the other international reporting forms the FBAR is not limited to one specific type of asset. For example, when taxpayers must report foreign corporations, they will file Form 5471. If they have to report a foreign trust then they would file Form 3520-A, but the FBAR is less specific and rather is used to report all different types of foreign financial accounts, such as bank accounts, investment accounts, foreign pension plans, certain life insurance policies, pooled funds (Mutual Funds and ETFs) and more. Let’s go through the most important facts about FBAR filing and reporting for the coming year.

The FBAR Form is Not an IRS Form

The first thing to remember about the FBAR is that it is not an IRS tax form. Technically it is a FinCEN (Financial Crimes Enforcement Network) form. The reason why this is important is that you will not find the FBAR form with your tax preparation documents. Rather, the form is located on the FinCEN website which taxpayers should download complete and submit electronically.

The FBAR is No Longer Due on June 30

Even to this day, there are some tax practitioners who believe the FBAR is still due on June 30th. For the past five-plus years, the due date was changed so that the FBAR is not due on June 30 — but rather on April 15th. Also, the FBAR has been on automatic extension for the past several years as well, so that the due date is actually October, and no extension needs to be filed.

FBAR is not Limited to Bank Accounts

The FBAR is not limited to just bank accounts (although bank accounts are the most common type of reportable asset). Rather, it includes many different types of foreign financial accounts, such as investment accounts, stock accounts, life insurance policies, and pension plans.

The Threshold is not 10,000+ Per Account

Each account that is reported on the FBAR does not have to have more than $10,000 in it in order to have to be reported. Rather, it is a $10,000 in annual aggregate total of all the accounts. Therefore, if one account had $300,000 and you had 17 different accounts with under $50 in each of them, you would still report all 18 accounts.

FATCA and FBAR are Not the Same Things

FBAR refers to foreign bank and financial account reporting. FATCA refers to the Foreign Account Tax Compliance Act. FATCA has been a filing requirement for taxpayers since 2012 (on the 2011 tax return). Depending on the type of account or asset that a person has, they may be required to file both forms in the same year. Sometimes only one form is required, but just because a taxpayer files one of these forms does not negate the requirement to have to file the other form if it is the type of account that is reported on both forms.

Non-Willful Penalties are Limited under Bittner

in late February 2023 the Supreme Court in the case of Bittner ruled that when it comes to non-willful FBAR penalties (which is the most common type of penalty) the IRS is limited to a perform per year penalty instead of a per account per year penalty. Therefore, penalties are limited to $10,000 per year although the $10,000 adjusts for inflation so it is currently closer to $14,000.

Willful Penalties Are Less Common (and can be Mitigated)

While willfulness FBAR penalties can be much higher and more severe, it is also important to note that most taxpayers are not willful. In fact, the majority of penalties that are assessed are non-willful penalties and even if willful penalties may be assessed, taxpayers have the opportunity to mitigate damages.

Reasonable Cause Avoids All FBAR Penalties

Another important concept to remember is that non-willfulness is not the same as reasonable cause. If a person is able to show that they acted with reasonable cause, they are able to avoid all FBAR-related penalties because when a person acts with reasonable cause, penalties will not issue — or if they have been issued would be abated.

US Persons vs Non-US Persons and Treaty Election Case

As set forth in IRS Publication 5569 (for easy reference), the IRS takes the position that when a person makes a treaty election to be treated as a foreign person, it does not negate their FBAR filing requirement. Nevertheless, there is a recent case that is challenging that position and the case is referred to as Aroeste, which involves treaty elections and FBAR filing requirements.

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. Also, try not to get too caught up in the term ‘offshore,’ as it does not reference anything nefarious for missed FBAR reporting — it just means that the money is outside of the United States.

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.