Many Americans living overseas are required to file a Foreign Bank Account Report (FBAR). Not everyone is aware of this, however, leading to unintentional violations. Here’s an overview of the topic to help you avoid any FBAR penalties.

Taxpayers who hold foreign accounts finally received clarity as the Supreme Court ruled that the $10,000 non-willful penalty for failure to file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) applies on a per form, not per account, basis.

Even if the IRS doesn’t approve you for these amnesty programs, you may still be able to prove “reasonable cause” for your failure to file. If you do, the IRS will likely reduce or eliminate any penalties against you.

The Bank Secrecy Act (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.

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.  The FBAR form (FinCEN Form 114) must be filed electronically using the BSA E-Filing System maintained by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

The FBAR due date is April 15th, with a maximum extension of 6 months.

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.

The FBAR is a purely informational tax form. Filing this form does not create a tax liability. Taxpayers lose nothing by filing when required—but could face stiff penalties if they fail.

What Are the Penalties for Not Filing an FBAR? 

The US Financial Crimes Enforcement Network or FinCEN regulates the FBAR. The full name for this form is FinCEN Form 114: Report of Foreign Bank and Financial Accounts.

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.

FBAR Penalties for Willful Failure to File 

Willful failure to file means that a person knew, or reasonably should have known, that they were required to file an FBAR and chose not to. The standard penalty for willful failure to file is $100,000 or 50% of the account’s balance at the time of the violation, whichever is higher, for each year that a required FBAR wasn’t filed.

In some cases, willful failure to file could even result in a prison sentence. The same penalties apply for knowingly filing a false or fraudulent FBAR.

FBAR Penalties for Non-Willful Failure to File 

A non-willful failure to file means that a person didn’t know, or reasonably couldn’t be expected to know, that they were required to file an FBAR.

The standard FBAR penalty for non-willful failure to file is $10,000 for each year that a required FBAR wasn’t filed.

Can the IRS Find People Who Haven’t Filed the FBAR? 

The short answer is yes. The Foreign Account Tax Compliance Act (FATCA) was 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.

It’s crucial to understand that the IRS takes FBAR reporting requirements seriously and has significant resources at its disposal to enforce compliance.

What Should I Do If I Didn’t File My FBAR Report? 

If you haven’t filed an FBAR when required, don’t panic. The penalties listed above are primarily aimed at US citizens who are “caught” failing to file and were contacted by the IRS first. If you are an American living abroad and haven’t been contacted yet, you may not be subject to any FBAR penalties.

The IRS provides two voluntary disclosure programs for Americans living abroad filing late taxes:

• The Streamlined Compliance Procedures
• The Delinquent FBAR Submission Procedures

Both tax amnesty programs let non-willful expat violators catch up on their filing obligations—including for the FBAR—without facing any penalties.

The Streamlined Foreign Offshore Compliance Procedures are designed for US expats who have been delinquent in filing their annual income taxes, and possibly also their required FBARs. If you qualify for the Streamlined Compliance Procedures, all you have to do is:

• Self-certify that your failure to file was not willful.
• File the last three delinquent income tax returns and pay any delinquent taxes you owed during that time (with interest).
• File FBARs for the last six years.

However, if you have been filing and paying your annual income taxes, you can use the Delinquent FBAR Submissions Procedures. To do this, you must:

• Self-certify that your failure to file was not willful.
• File all delinquent FBARs

In most cases, this should be sufficient to bring you into compliance with IRS standards.

If you need more information, please do not hesitate to call us to the office from 9 to 2 (+34 91 519 4392) or book a free appointment through our website. (www.ustaxconsultants.es)