If you are a US citizen or resident who has foreign financial accounts, the US government requires you to report those accounts annually through the Foreign Bank Account Report (FBAR), also known as FinCEN Form 114. However, there are times when a taxpayer may fail to submit their FBAR on time. When this happens, the result is a delinquent FBAR, which can lead to serious consequences.
What is a Delinquent FBAR?
A delinquent FBAR occurs when a US person fails to file the FBAR on time for foreign bank accounts and financial interests. The FBAR filing requirement is typically due on April 15th each year, with an automatic extension until October 15th. If the deadline passes and you haven’t filed your FBAR or requested an extension, it is considered delinquent.
The FBAR is a critical reporting tool for the US government to combat money laundering, tax evasion, and other financial crimes. It must be filed if the combined value of foreign financial accounts exceeds $10,000 at any point during the calendar year.
5 Common Reasons for a Delinquent FBAR
There are several common reasons why taxpayers might find themselves with a delinquent FBAR. These reasons may include:
- Lack of Awareness: Many US expats or individuals with foreign financial accounts don’t realize the FBAR filing requirement exists. They may be unfamiliar with the need to report foreign accounts, especially if they have lived abroad for an extended period or have not been fully informed about US tax obligations.
- Accidental Oversight: For some, missing the FBAR deadline is a simple case of forgetting. They may have filed their tax returns but neglected to include the FBAR, leading to delinquency.
- Unfamiliarity with Foreign Accounts: Sometimes, taxpayers might overlook certain foreign accounts, such as accounts held by family members or business interests, which must also be reported.
- Noncompliance due to Complexity: Some individuals with more complex financial situations, such as owning multiple foreign accounts or assets, may find it difficult to keep track of the FBAR filing requirements. This can lead to errors or omissions in the reporting process.
- Foreign Account Changes: If you’ve opened or closed foreign accounts or had changes in your financial holdings, you might not realize that you need to file an updated FBAR.
While these reasons may explain why an FBAR is delinquent, they do not excuse the taxpayer from compliance with US reporting laws.
How many years of Delinquent FBARs do you need to catch up?
If you have several years of delinquent FBARs, you might wonder how many years you need to catch up on. The statute of limitations for delinquent FBARs is six years. This means that the IRS typically has up to six years from the filing deadline to assess any penalties related to missing FBAR filings.
Consequences of a Delinquent FBAR
Failing to file an FBAR on time can lead to significant consequences, ranging from financial penalties to criminal charges. The severity of the consequences depends on whether the failure to file was willful or non-willful:
- Non-Willful Violations: If the failure to file is not intentional, the IRS may impose penalties of up to $10,000 per violation. This can add up quickly if there are multiple years of delinquent FBAR filings or if there are many foreign accounts involved.
- Willful Violations: If the failure to file is determined to be willful, the penalties can be much higher—up to the greater of $100,000 or 50% of the balance in the unreported account for each violation. This can lead to significant financial hardship for the taxpayer.
- Criminal Penalties: In extreme cases, willful failure to file an FBAR can result in criminal charges, with penalties that may include imprisonment, in addition to financial penalties.
It’s important to take action immediately if you discover you have a delinquent FBAR to avoid these severe consequences.
How to resolve a Delinquent FBAR?
Resolving a delinquent FBAR situation requires careful attention to ensure compliance. Here are the steps you can take to resolve the issue:
Determine if you are required to file: Not all US persons with foreign bank accounts are required to file an FBAR. If your combined foreign accounts do not exceed the $10,000 threshold at any point during the year, you may not be required to file. Be sure to review your foreign assets and determine if you meet the filing criteria.
File the FBAR the standard way: If you determine that you need to file the FBAR, the standard procedure is to file it online through the FinCEN BSA E-Filing System. You should file the delinquent FBAR as soon as possible, and if you owe penalties, consider whether they may be reduced by coming into compliance voluntarily.
File using available programs: There are specific procedures available to help taxpayers with delinquent FBARs. Two common programs include:
- Streamlined Filing Compliance Procedures: If you unintentionally failed to file your FBAR and have not submitted required tax returns or other forms to report your income, you might qualify for the Streamlined Filing Compliance Procedures. This program enables taxpayers to catch up on their filings without facing significant penalties, provided they meet specific conditions, such as spending at least 330 days outside the United States in one of the past three years.
- Delinquent FBAR Submission Procedure: If you have no unreported income and your only issue is the delinquent FBAR filing, you may be eligible for the Delinquent FBAR Submission Procedure. This allows you to submit the delinquent FBAR without additional forms or penalties, provided you haven’t been contacted by the IRS. If you meet the criteria, you can file just the FBAR without having to file tax returns or other delinquent forms.
How to file using the Delinquent FBAR Submission Procedure?
If you meet the eligibility criteria, follow these steps to use the Delinquent FBAR Submission Procedure:
1. Prepare the Missing FBARs
Use FinCEN’s online portal to complete the delinquent FBAR (Form 114) for each year that was missed. Ensure you provide accurate and complete information for all foreign financial accounts during the delinquent years.
2. Submit a Written Explanation
When submitting the delinquent FBARs, include a brief explanation of the reason for your late filing. This explanation should address why the FBAR was not filed on time and confirm that the failure was not intentional. Examples of acceptable explanations include unawareness of the filing requirement, confusion about deadlines, or inadvertent oversight.
3. File Electronically via the FinCEN Portal
All FBARs must be submitted electronically through the Financial Crimes Enforcement Network (FinCEN) platform. Select the appropriate filing year for each delinquent FBAR.
Dealing with a delinquent FBAR can be stressful, but solutions are available to resolve the issue and avoid severe penalties. Whether you opt for standard filing, the streamlined filing procedure, or the delinquent FBAR submission procedure, it’s essential to act promptly. If you’re uncertain about the best approach, Universal Tax Professionals is here to help. With over a decade of experience in US expat taxes, our team is here to guide you every step of the way.
