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Many Americans living overseas\u00a0are required to file\u00a0a\u00a0Foreign Bank Account Report (FBAR).\u00a0Not\u00a0everyone is aware of this,\u00a0however,\u00a0leading to unintentional violations. Here\u2019s an overview of the topic to help you avoid any FBAR penalties.<\/p>\n
Taxpayers who hold foreign accounts finally received clarity as the Supreme Court ruled that the\u00a0$10,000 non-willful penalty\u00a0for failure to file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) applies on a per form, not per account, basis.<\/p>\n
Even if the IRS doesn\u2019t approve you for these amnesty programs, you may still be able to prove \u201creasonable cause\u201d for your failure to file. If you do, the IRS will likely reduce or eliminate any penalties against you.<\/p>\n
The\u00a0Bank Secrecy Act<\/a>\u00a0(BSA) gives the Department of Treasury the authority to collect information from United States persons, including expats, who have financial interests in or signature authority over financial accounts maintained with financial institutions located outside of the United States.<\/p>\n The BSA requires that a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR), be filed if the maximum values of the foreign financial accounts exceed $10,000 in the aggregate at any time during the calendar year.\u00a0 The\u00a0FBAR form\u00a0(FinCEN Form 114) must be filed electronically using the BSA E-Filing System maintained by the U.S. Department of the Treasury\u2019s Financial Crimes Enforcement Network (\u201cFinCEN\u201d).<\/p>\n The\u00a0FBAR\u00a0due\u00a0date\u00a0is\u00a0April\u00a015th, with a maximum extension of 6 months.<\/p>\n The FBAR is an annual report that U.S. citizens, residents, and certain other persons must file with the U.S. Treasury Department if they have a financial interest in, or signature authority over, a financial account in a foreign country with an aggregate value of more than $10,000 at any time during the calendar year. Failing to file an FBAR when required can result in severe penalties.<\/p>\n The FBAR is a purely informational tax form. Filing this form does not create a tax liability. Taxpayers lose nothing by filing when required\u2014but could face stiff penalties if they fail.<\/p>\n What Are the Penalties for Not Filing an FBAR?\u00a0<\/strong><\/p>\n The US Financial Crimes Enforcement Network or FinCEN regulates the FBAR.\u00a0The full name for\u00a0this form\u00a0is\u00a0FinCEN Form 114<\/a>:\u00a0Report of Foreign Bank and Financial Accounts.<\/p>\n While FinCEN regulates the FBAR, the IRS has the delegated authority to enforce penalties for FBAR violations. FBAR penalties vary, depending on whether the failure to file was willful or non-willful.<\/p>\n FBAR Penalties for Willful Failure to File\u00a0<\/strong><\/p>\n Willful failure to file\u00a0means that a person knew, or reasonably should have known, that they were required to file an FBAR and\u00a0chose not to.\u00a0The standard penalty for\u00a0willful\u00a0failure to file is $100,000 or 50% of the account\u2019s balance at the time of the violation, whichever is\u00a0higher, for each year that\u00a0a\u00a0required FBAR wasn\u2019t filed.<\/p>\n In\u00a0some cases,\u00a0willful failure to file\u00a0could even result in\u00a0a prison sentence.\u00a0The same\u00a0penalties\u00a0apply\u00a0for knowingly filing a false or fraudulent FBAR.<\/p>\n FBAR Penalties for Non-Willful Failure to File\u00a0<\/strong><\/p>\n A non-willful failure to file means that a person didn\u2019t know, or reasonably couldn\u2019t be expected to know, that they were required to file an FBAR.<\/p>\n The\u00a0standard FBAR\u00a0penalty for\u00a0non-willful failure to file is $10,000 for each year\u00a0that\u00a0a required FBAR wasn\u2019t filed.<\/p>\n Can the IRS\u00a0Find People Who\u00a0Haven\u2019t\u00a0Filed the FBAR?\u00a0<\/strong><\/p>\n The short answer is yes. The\u00a0Foreign Account Tax Compliance Act (FATCA)<\/a>\u00a0was passed in 2010, and it mandates that foreign financial institutions report the balance of any accounts held by US citizens to the IRS. This means that the IRS generally knows who should file an FBAR, and by cross-referencing that information with FBAR filing data, they can identify who has failed to file an FBAR, whether willfully or non-willfully.<\/p>\n It\u2019s crucial to understand that the IRS takes FBAR reporting requirements seriously and has significant resources at its disposal to enforce compliance.<\/p>\n What\u00a0Should I Do If\u00a0I Didn\u2019t File My FBAR Report?\u00a0<\/strong><\/p>\n If you haven\u2019t filed an FBAR when required, don\u2019t panic. The penalties listed above are primarily aimed at US citizens who\u00a0are \u201ccaught\u201d failing to file and were contacted by the IRS first.\u00a0If you\u00a0are an American living abroad\u00a0and\u00a0haven\u2019t been contacted yet, you may not be subject to any FBAR penalties.<\/p>\n The IRS provides\u00a0two\u00a0voluntary disclosure programs\u00a0for Americans living abroad filing\u00a0late taxes:<\/p>\n Both tax amnesty programs\u00a0let non-willful expat violators catch up on their filing obligations\u2014including for the FBAR\u2014without facing any penalties.<\/p>\n\n