Question: I have recently become aware of the FBAR filing requirements, and I have not filed FBARs for more than 10 years. Should I file FBARs past the six year statute of limitations? What can happen to me if I do not file them at all?
As a tax lawyer in Columbus, Ohio who also practices immigration law, I am frequently asked questions about reporting of delinquent international informational returns, including the Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”).
Below is a multi-faceted response to the above FBAR question. There are many different factors that must be considered in determining the best way to report your delinquent FBARs. Contact an experienced Columbus tax lawyer for a free case evaluation to discuss your options in reporting delinquent FBARs.
IRS Delinquent International Return Procedures
The Internal Revenue Service (“IRS”) has established procedures to come into compliance with international information return filings, including the FBARs. These programs generally decrease the civil penalties that could be imposed as well as the likelihood of a criminal tax referral by the IRS. There are many different factors that must be considered in determining the best procedure for reporting delinquent FBARs.
The procedures include the Offshore Voluntary Compliance Program (“OVDP”), which was recently modified, the Streamlined Filing Compliance Procedures (SFCP), which were recently expanded, and the delinquent submission procedures for FBARs and other international informational returns.
Offshore Voluntary Compliance Program (OVDP)
If, after analyzing your options with an experienced tax lawyer, your facts indicate that reporting under the OVDP is the best approach, you will generally have to prepare and file returns for the most recent eight tax years for which the due date has already passed, which includes FBARs. The OVDP is now most applicable to taxpayers who have unreported income from foreign financial investments that they willfully failed to disclose. Taxpayers will pay the tax, interest, accuracy related penalties, and an offshore penalty of 27.5% or 50% of the highest aggregate value of their offshore assets during the eight year period. The IRS will generally not recommend criminal prosecution if the taxpayer fully cooperates with the IRS during the OVDP process.
Streamlined Filing Compliance Procedures (SFCPs)
If you are eligible for the SFCPs, you will have to file returns for for each of the most recent 3 years for which the U.S. tax return due date has passed with all required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) and the most recent 6 years for which the FBAR due date has passed. The taxpayer would also have to certify that the failure to file was non-willful. Depending on the circumstances, the taxpayer could either pay no penalty or a penalty of 5 percent of the highest aggregate balance/value of the foreign financial assets during the six year FBAR period.
Delinquent Filing Procedures
Finally, the IRS will not impose a penalty for the failure to file the delinquent FBARs if the taxpayer properly reported on their U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs and they have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted. FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.
Civil and Criminal Penalties for Failure to File FBARs
If the taxpayer did not come forward and apply under one of the above procedures, when the IRS discovered the tax and FBAR noncompliance, the taxpayer would have to pay substantially more in penalties. The taxpayer would also be liable for interest and possibly additional penalties, and an examination could lead to criminal prosecution.
The civil penalties for failing to file FBARs and other international informational returns can be steep. For example, the penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per year. Non-willful violations can be as high as $10,000 per year.
Further, failure to file federal tax returns and international informational returns can lead to a criminal referral by the IRS. Currently, the IRS is working with banks overseas pursuant to FATCA and are obtaining detailed information on U.S. taxpayers invested in those institutions. That’s why most experts in this area recommend coming into compliance under one of the IRS’s programs ASAP.
Contact an Experienced Columbus Tax Lawyer
Voluntary Disclosure and FBAR Representation
Columbus tax lawyer at Porter Law Office, LLC has in depth experience resolving difficult voluntary disclosures for reporting income from foreign investments and filing FBARs. By hiring Porter Law Office, LLC, you can learn about the seriousness of your situation and be guided to the best possible resolution at the least overall cost. Columbus tax lawyer Matthew R. Porter is an experienced international tax attorney who understands what it takes to overcome the legal hurdles associated with reporting delinquent FBARs under the offshore voluntary disclosure process and streamlined filing compliance procedures. Schedule a free consultation today with a Columbus tax lawyer to discuss your options.