Do you know that as an expat staying abroad, you have to file a foreign bank report (FBAR)? In this blog, we at USTAXFiling will assist you with all the details related to Foreign bank reports. Ensure to continue to read this post until the end so that you don’t miss out on any updates!
Here is an overview of the topic to assist you in avoiding any Foreign bank and account reporting penalties.
Major Facts
- If you fail to file Foreign bank and account reporting when needed, the IRS (Internal Revenue Service) provides an amnesty program to assist income taxpayers in catching up without paying any charges.
- The FBAR (Foreign bank and financial accounts) is a yearly report that residents, citizens of the United States, and specific other individuals should file with the Department of the US Treasury if they have any financial account in a foreign nation with an value of more than $10,000 at any time during the financial year. If you fail to file an FBAR when needed, it can result in severe fines.
- If you fail to file an FBAR when needed, the IRS (Internal Revenue Service) provides an amnesty program if you become eligible to assist income taxpayers in catching up without paying any penalties.
The FBAR or Foreign Bank Account Report is a form that is used to report your financial accounts outside the United States. The intent of the FBAR is to prevent Americans from evading tax obligations by hiding their wealth abroad.
What Are the Charges for Not Filing an FBAR?
The Financial Crimes Enforcement Network of the United States, or FinCEN, runs the FBAR (The name of the form is FinCEN Form 114: Report of Foreign Bank Reporting)
While FinCEN runs the FBAR, the IRS (Internal Revenue Service) has been assigned the authority to enforce charges for FBAR violations. FBAR fines may differ based on whether the failure to file FBAR was non-willful or willful.
Pro tip
The FBAR (Foreign bank and financial accounts) is an informational tax form. When you file this form, it does not create any liability for tax. Income taxpayers don’t lose anything by filing when needed but might face hefty charges if they fail to file the FBAR Form.
FBAR Charges for Willful Failure to File
Willful failure to file FBAR means that an individual knew or reasonably must have known that they have to file an FBAR, but they chose not to. The standard charge for willful failure to file is $100,00 or even 50 percent of the balance in the bank account at the time of the violation, whichever is higher for every financial year that a required FBAR Form was not filed.
In a few scenarios, willful failure to file might even result in a prison sentence. The same charges may apply for knowingly filing a fraudulent or false FBAR.
FBAR Charges for Non-Willful Failure to File
A non-willful failure to file FBAR means that an individual didn’t know anything or reasonably might not be expected to know that they have to file an FBAR. The standard FBAR charge for non-willful failure to file is $10,000 for the financial year that a needed FBAR was not filed.
There was a legal gray area whether these FBAR charges were pre-account or pre-form. Per-form means that a single charge might apply for every form that was not filed every year. For instance, if an individual fails to disclose seven foreign accounts for two years, then they may be fined the non-willful charges of $10,000 for each of those years. It comes to a total of $20,000.
Also, court rulings have made it clear that the IRS is taking a pre-account approach to FBAR charges. It means that an individual in the above example might be penalized for a separate account that they failed to disclose. Seven accounts for two years and a penalty of $10,000 will come to a total penalty of $140,000
Can the IRS Find Individuals Who Haven’t Filed the Foreign Bank Report?
A big Yes! The FATCA (Foreign Account Tax Compliance Act) came into existence in 2010, and it mandates that foreign financial institutions report the balance of accounts that are held by citizens of the United States to the Internal Revenue Service.
It means that the Internal Revenue Service knows who must file an FBAR, and by cross-referencing those details with FBAR filing data, they may identify who has failed the FBAR form, whether non-willfully or willfully.
The charges for failing to file an FBAR may be severe. For any willful violations, the charges maybe 50 percent of the bank account balance or $100,000. Non-willful violation charges can be up to $10,000. In a few cases, criminal charges may be filed. It is necessary to know that the Internal Revenue Service takes FBAR (Financial Bank and Account Reporting) reporting seriously and has sources at its disposal to enforce compliance.
What Do I Have To Do If I Didn’t File My Foreign bank Report?
If you don’t file your FBAR Form when needed, don’t panic at all. The charges listed above are aimed at citizens of the US who are caught failing to file FBAR and were contacted by the IRS first. If you are an American who stays overseas and still not contacted by the IRS, you are not subject to any FBAR charges.
The Internal Revenue Service offers two voluntary disclosure programs for Americans staying overseas filing late income taxes:
- The delinquent FBAR Submission procedures
- The procedure for streamlined compliance
Both of the amnesty programs allow non-willful expat violators to catch up on their filing obligations, including the FBAR, without facing any charges.
The process of streamlined compliance is well-designed for expats in the USA who are delinquent in filing their yearly income taxes and also need FBARs. If you become eligible for the Streamlined Compliance process, all you have to do is:
- You have to file FBARs for the past six years.
- You must self-certify that your failure to file was not willful.
- You have to file the previous three years’ income tax returns and also pay for any delinquent income taxes you owed during that time with interest.
Also, if you are filing FBAR and paying your income taxes yearly, you may use the Delinquent FBAR submissions procedure. You have to:
- File all delinquent FBARs
- You have to self-certify that your failure to file FBAR was not willful
In several cases, this is enough to bring you into compliance with the standards of the IRS (Internal Revenue Service)
Pro Tip
Even if the Internal Revenue Service does not certify you for these amnesty programs, you can prove reasonable reason for failure to file FBAR. If you do, the Internal Revenue Service may eliminate or reduce your charges against you.
Have Questions about Foreign bank reporting Charges? We’re here to Assist You!
We hope that in this post, you got a clear understanding of how FBAR charges may impact US Expats staying overseas. Our USTAXFiling is here to help you anytime. Our USTAXFiling experts have years of experience and are highly knowledgeable to help you with FBAR filing. If you need any advice on your specific tax situation, you can connect with our USTAXFiling, and they will resolve your queries at the earliest. Get in touch with USTAXFiling for your FBAR Form filing now!