Posted on March 20,2023 in Taxation Law
The Foreign Bank and Financial Account Report, which is usually referred to as the FBAR, is an important tax filing requirement for U.S. citizens and residents who have foreign financial accounts. If you fail to file an FBAR when required, this can result in hefty fines and penalties from the IRS. Missing the deadline can lead to serious consequences, and taxpayers will need to understand the available options in these situations.
Understanding FBAR Requirements
The FBAR filing requirement applies to taxpayers who have a financial interest in or signature authority over one or more accounts at a foreign financial institution outside the United States. If the aggregate value of all foreign accounts owned by a taxpayer exceeds $10,000 at any point during a tax year, an FBAR must be filed. Eligible taxpayers include individual U.S. citizens or residents of the United States, as well as LLCs, business partnerships, trusts, and estates. Foreign accounts that must be reported include bank accounts, retirement accounts, brokerage accounts, as well as accounts for trading in precious metals or gems and other types of foreign financial assets.
Addressing Delinquent FBARs
An FBAR for a tax year is due on April 15 of the following year. That is, if you owned foreign financial accounts that had a total aggregate value of at least $10,000 at any point during the calendar year 2022, you will be required to file an FBAR by April 15, 2023. However if you miss this deadline, an automatic extension will be granted, and an FBAR may be submitted before October 15. You may submit the FBAR at any time before this date without the need to request an extension. All FBARs must be filed electronically on the Financial Crimes Enforcement Network (FinCEN) website.
If you failed to file an FBAR by the deadline, you can still submit the form and select a reason for the late filing, while also providing a statement explaining why the form is being filed after the deadline. If you properly reported income from foreign financial accounts on your tax return for that year and paid all applicable taxes, you may not be required to pay penalties as long as the IRS determines that there was a reasonable cause for the late filing. However if you were contacted by the IRS regarding a delinquent FBAR or tax return for that year, or if the IRS has chosen to conduct a tax audit, penalties may apply.
Understanding Potential Penalties for Failure to Submit an FBAR on Time
Failure to file an FBAR can result in significant civil penalties. For non-willful violations, penalties assessed after January 19, 2023 have a maximum of $15,611 per violation. If the IRS determines that a willful violation occurred, a maximum penalty of $156,107 may apply. Willful violations may also result in criminal penalties, which may include fines of up to $250,000, as well as a sentence of up to 5 years in prison. To avoid or minimize penalties, it is important to ensure that FBARs are filed on time, and any issues related to delinquent FBARs should be corrected as soon as possible.
Contact Our San Jose Foreign Tax Reporting Lawyer
Missing the FBAR filing deadline can lead to serious consequences from the IRS, but taxpayers have options for complying with their requirements and demonstrating why they failed to file the proper forms on time. At John D. Teter Law Offices, we can help address issues related to delinquent FBARs or other issues that could result in penalties, and we can advise you on the best steps to take to minimize your potential penalties. Contact Our San Jose, CA foreign account tax attorney at 408-866-1810 to set up a consultation and discuss tax-related concerns.
Sources:
https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar (historical)
https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures
https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1010/subpart-H/section-1010.821
