The tax attorneys at Nardone Law Group in Columbus, Ohio, continuously monitor the latest developments in the Internal Revenue Service’s efforts to encourage taxpayers to disclose foreign accounts, assets, or entities. In our prior articles on the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures, we provided an overview of the recent expansions of those programs, as well as the qualification requirements and benefits of each. To qualify for participation and to take advantage of the various benefits that each program provides, it is important that taxpayers are aware of and fully understand these requirements.
As part of the Offshore Voluntary Disclosure Program, taxpayers are required to address their failure to file the required Report of Foreign Bank and Financial Accounts, commonly referred to as the FBAR form. In certain circumstances, however, taxpayers with undisclosed foreign financial interests will not need to use the Streamlined Filing Compliance Procedures or the Offshore Voluntary Disclosure Program. In such cases, the taxpayer may simply need to file the FBAR, by following the Delinquent FBAR Submission Procedures. This article outlines the necessary steps involved, as well as the pertinent qualification requirements.
Background on the FBAR Form
Federal tax law requires taxpayers with an interest in a foreign financial account to report that foreign financial account interest to the IRS by filing an FBAR form (FinCEN Form 114, formerly Form TD F 90-22.1). To fulfill their U.S. tax reporting obligations, as relating to foreign financial accounts, taxpayers must disclose the account on their income tax returns and properly file the FBAR form. Failure to comply with the FBAR filing requirements can result in civil and criminal penalties (see FBAR Penalties). Therefore, regardless of whether the taxpayer needs to utilize the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures, it is essential that they are aware of the FBAR requirements and the ability to file a delinquent FBAR form.
FBAR Filing Requirements
U.S. taxpayers who have a financial interest in, or signature authority over, a foreign financial account must file the FBAR if the aggregate value of the account exceeds $10,000 at any time during the calendar year. The FBAR for any particular calendar year is to be filed on or before June 30 of the following year. Additionally, the taxpayer must also disclose the foreign financial account on Schedule B of the taxpayer’s individual income tax return.
A “financial account” includes any securities, brokerage, savings, demand, checking, deposit, or other account maintained within a financial institution. A financial account also includes a commodity futures or options account, an insurance policy with a cash value, an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. A “foreign financial account” is a financial account located outside the United States, including correspondent accounts.
Delinquent FBAR Submission Procedures
Taxpayers who do not need to use either the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedures to file a delinquent or amended tax return, may still need to file a delinquent FBAR form. To utilize the Delinquent FBAR Submission Procedures, the taxpayer must meet the following criteria:
1. Taxpayer has not filed a required FBAR (FinCEN Form 114, previously Form TD F 90-22.1);
2. Taxpayer is not currently under a civil examination or a criminal investigation by the IRS; and
3. Taxpayer has not already been contacted by the IRS about the delinquent FBARs.
To resolve the delinquent FBARs, the taxpayer should follow the IRS’ FBAR instructions and include a statement explaining why the FBARs are being filed late. All FBARs are to be filed electronically at FinCEN. Taxpayers who are unable to file electronically should contact FinCEN’s help line directly to determine a possible alternative.
The IRS will not impose a penalty for failure to file the delinquent FBARs, so long as the taxpayer properly reported, and paid all tax on, the foreign financial accounts being reported on the delinquent FBARs. The taxpayer also must not have been previously contacted by the IRS regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
There are many critical considerations that taxpayers must weigh in deciding how to come into compliance with U.S. tax reporting obligations. If you have a previously undisclosed foreign financial account, there are multiple methods for coming into compliance, but it is crucial to choose the right one. The IRS has a broad scope to assess penalties when the failure to disclose a foreign financial account is deemed willful. To avoid possible civil and criminal penalties, taxpayers should consult with an experienced tax attorney to determine what disclosure program or procedure is best suited to their needs.
How Nardone Law Group Can Help
The tax attorneys at Nardone Law Group routinely represent businesses and individuals with federal and state tax issues, including identifying any reporting and payment obligations related to foreign financial accounts. The Offshore Voluntary Disclosure Program and FBAR are a prime example of how taxpayers can come into compliance relating to previously undisclosed foreign accounts. If you have unreported foreign income, or an undisclosed foreign account, asset, or entity, contact one of our experienced tax attorney’s today. One day can mean the difference between the benefits of voluntary disclosure and the severe penalties one can incur from a willful violation. Nardone Law Group has vast experience representing clients before the IRS. Our tax attorneys will thoroughly review your case to determine what options and alternatives are available.