What are the New Procedures for Submitting Delinquent FBAR?

Delinquent FBAR Submission Procedures: 5 Key Facts

Delinquent FBAR Submission Procedures

While there are many different types of international information reporting forms that a U.S. taxpayer may have to file each year to report their foreign accounts, assets, and investments to the Internal Revenue Service, the FBAR (Foreign Bank and Financial Account Reporting) is the most well-known out of all the foreign reporting forms. Unlike several of the other international reporting forms, the FBAR is filed electronically and directly on the FinCEN website and not to the IRS. This is because the FBAR is not technically an IRS form (although the IRS is tasked with enforcement and compliance). Many taxpayers who are out of FBAR compliance will not learn until several years have passed by that they should have been filing the FBAR form each year. To try to avoid or minimize fines and penalties, taxpayers have various FBAR offshore amnesty programs available to them. One of the best programs that the taxpayer may have available to them is the Delinquent FBAR Submission Procedures (DFSP) — but there are various specific requirements to be aware of before making a delinquent FBAR submission. Let’s walk through the basics of the Delinquent FBAR Submission Procedures.

Submission Procedures for Delinquent FBAR 

As provided by the IRS:

• • • “Taxpayers who do not need to use either the IRS Criminal Investigation Voluntary Disclosure Practice or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:

      • • have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1),

        • are not under a civil examination or a criminal investigation by the IRS, and

        • have not already been contacted by the IRS about the delinquent FBARs should file the delinquent FBARs according to the FBAR instructions.”

Follow these steps to resolve delinquent FBARS

• • • Review the instructions.

    • Include a statement explaining why you are filing the FBARs late.

    • File all FBARs electronically at FinCEN’s BSA E-Filing System.

    • On the cover page of the electronic form, select a reason for filing late.

    • If you are unable to file electronically, you may make an inquiry using the various contact options at Regulatory Help | FinCEN.gov to determine possible alternatives to electronic filing.

      • The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

      • FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.”

Let’s review the key points to the IRS summary:

 Review the Instructions

Ever since the FBAR transition into electronic form it has been touch and go with the IRS/FinCEN electronic systems to get the forms filed. In addition, not everyone who has delinquent FBARs will qualify for the delinquent FBAR submission procedures. This is why the IRS wants to make sure taxpayers are submitting to the correct program and to ensure that taxpayers carefully review the delinquent FBAR submission procedures instructions before submitting the forms.

Include a Statement Explaining Why You are Filing the FBARs Late.

To qualify for the delinquent FBAR submission procedures, the Taxpayer must qualify as non-willful. Unfortunately, there is no bright line test to determine whether a taxpayer is non-willful or not, but rather the IRS will evaluate the totality of the circumstances to determine whether the taxpayer has met the eligibility requirements to be considered non-willful. Drafting the Delinquent FBAR Submission statement is similar in spirit to a non-willful certification for the streamlined procedures but is much more limited in the character limit so taxpayers have to be very careful in the words they choose. We have additional resources to assist with understanding the basics of writing a certification statement and taxpayers may also want to check out the Internal Revenue Manual (IRM) for additional assistance.

File All FBARs Electronically  

To submit to the delinquent FBAR submission procedures, taxpayers should be sure they are filing accurate and correct FinCEN Form 114. There are prior versions of the FBAR that were filed by paper instead of electronically, but those prior versions of the form are no longer valid so taxpayers should be sure to file their forms electronically, directly on the FinCEN website.

Alternative Programs to Delinquent FBAR

Some taxpayers may not want to submit to the delinquent FBAR submission procedures and are otherwise ineligible. There are various other amnesty programs taxpayers may qualify for if they are ineligible for Delinquent FBAR and/or prefer other FBAR submission options.

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 who 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. 

*This resource may help taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.