If you pay taxes in the U.S. but also had one or more financial accounts with at least $10,000 in assets outside the U.S. at any point during the year, you’re typically required to file a Foreign Bank Account Report (FBAR) with FinCEN.
U.S. citizens have to pay tax on their worldwide income. Additionally, the IRS likes to know how much money you are holding in foreign banks. FBARs for individuals typically have the same due date as other tax forms. The FBAR is filed electronically through FinCen’s E-Filing System using form FinCEN 114 – not directly with the IRS.
What if you just learned about the FBAR requirement, and you have one or more unfiled FBARs? There can be substantial civil and criminal penalties for unfiled reports. However, the IRS has two options for people who simply didn’t know about the requirement.
Delinquent FBAR Submission Procedures
These are for people who haven’t submitted FBARs but have been filing their U.S. income tax returns and reporting all income as required. They simply need to certify that their failure to file the forms was not intentional and then file all FBARs that are late.
Streamlined Compliance Procedures
There are two types of streamlined procedures. One for those that reside in the United States (Streamlined Domestic Offshore Procedure) and one for those that reside outside the United States (Streamlined Foreign Offshore Procedure). The requirements vary slightly, but both require certification under penalty of perjury that failure to file their documents was not intentional. They’re also required to file the past three income tax returns due (or up to that if it’s fewer) and pay any taxes owed for these years, file any missing FBARs for up to the past six years, and pay a predetermined penalty. The penalty under this procedure can be substantially lower than if no action is taken to correct income tax and FBAR omissions.
Note that you have a better chance of avoiding penalties if you take the initiative to notify the IRS of your oversight. If the IRS spots the failure to file before you correct the matter, it may be more difficult to defend against penalties.
If you find yourself in this situation, it’s wise to seek experienced legal guidance. This can help ensure that you handle the matter appropriately.