Do you have any offshore assets? Meaning, do you have a bank account overseas, investments, or another financial interest in a foreign country? Expats and others need to know about filing the Report of Foreign Bank Account (FBAR). The FBAR filing, like all US tax obligations, has a timeframe. And there is a deadline – in fact, you just missed it. Failure to file FBAR can result in severe repercussions and the monetary cost of missing a filing can be high.
Did you miss the deadline for reporting your foreign account interests? What happens now? Do you have any options with the US tax authorities if you missed filing FinCEN Form 114 (“FBAR”)?
When Was the Deadline for the 2016 FBRA?
Anyone with financial interests abroad was required to file FBAR by June 30, 2016. The FinCEN Form 114 could only be filed online through the Bank Secrecy Act e-portal. The FBAR is a legal obligation – it is not optional to file FBAR when it applies to you. It is a form that is submitted to the US government under the penalty of perjury. Have you already filed FBAR? Good for you – you’re now properly complying with the US Tax Code.
But if you have not filed FBAR, you are in the opposite state. By not filing you are in violation of the tax code and there are penalties attached to this status. Many people do not realize they are legally obliged to file this form, and believe that it is seen as optional. But the US tax authorities do not look kindly on people’s mistakes or ignorance.
It is easy to forget the FBAR as it is not filed with the tax return and no payment is made – the form merely tells the government about the presence of foreign accounts.
Could you have filed for an extension? No – not in 2016. There was no facility for putting in a claim for an extension on the FBAR filing. But take note, in 2017 there will be an extension available. There will also be automatic relief included in the filing for taxpayers who are filing FBAR for the first time.
But that’s 2017. What happens this year if you failed to file?
What Penalties Do I Face if I Missed the FBAR Deadline?
In theory, if the penalties for missing the filing deadline, whether intentionally or accidentally, are quite severe. But it is in the case of deliberate or perceived deliberate evasion that penalties are harshest. In cases where the tax agent believes that offshore tax evasion is happening, the investigation and prosecution will be swift and thorough – the US tax agency is tough on offshore tax evasion issues.
If you are found to have failed to disclose all or some of your foreign assets and accounts which are covered by FBAR legislation, you could be hit with a $10,000 penalty. Plus, this penalty is per account so if you have five overseas accounts you could theoretically get a $50,000 fine. Criminal charges may also apply.
If you missed multiple deadlines and failed to disclose this information over multiple years, you could be faced with penalties for every year when you didn’t file and you should.
Using Streamlined Disclosure to Fix Foreign Account Reporting Problems
But the IRS is not necessarily set on hitting every missed FBAR deadline with a $10,000 fine. The IRS recognizes that there are difficulties for US taxpayers trying to figure out the array of reporting requirements and understand what obligations they are under. There are programs like the Streamlined Disclosure program where a US taxpayer can correct tax mistakes made in the past regarding FBAR filings.
But it is not necessarily the right thing for everyone. A Streamlined Disclosure filing is not the only way in which an individual can get relief on tax obligations and it is essential that taxpayers talk to a tax professional to find out which option is best for their needs.
Delinquent FBAR Submission Procedures
There is also an option to use the delinquent FBAR submission procedures on the IRS websites if you do not owe money but you did fail to file.
You may not face any penalties if you did not deliberately evade reporting foreign financial interest. In cases where you do not owe money and have paid taxes on all your income from foreign accounts the IRS may not impose penalties, especially if you have never missed filings before.
If you missed filing FBAR or you have other issues and concerns with your compliance, you need to seek assistance.
A missed FBAR will not go away, and will certainly grow more serious over time. Tax specialists are available to help correct non-compliance and get back on track.