Delinquent FBAR Submission Procedures: 5 Key Facts
Contents
- 1 Delinquent FBAR Submission Procedures
- 2 Income Reported and Taxes Paid
- 3 No Certification Form Required
- 4 The Procedures Specifically Refer to FBAR
- 5 The Taxpayer Is Not Under Audit or Criminal Investigation
- 6 No Communications From the IRS About the FBAR
- 7 Golding & Golding: About Our International Tax Law Firm
Delinquent FBAR Submission Procedures
Each year, US persons who have foreign accounts and meet the threshold requirements for disclosing the accounts to the US government may have to report the information on the annual FBAR (Foreign Bank and Financial Account Reporting Form aka FinCEN Form 114). With international information reporting of foreign accounts, assets, and investments, the FBAR is the most common filing requirement. Preparing the FBAR is typically not as difficult as some of the other forms such as Forms 5471 or 3520-A. The key issue involving the FBAR is when the form is filed untimely, as it could result in significant fines and penalties that are completely lopsided in relation to the violation itself. In order to avoid these penalties, the IRS has developed various procedures and programs to assist taxpayers with getting into compliance, including the Delinquent FBAR Submission Procedures (DFSP). Oftentimes, the Delinquent FBAR Submission Procedures can be more complicated than meets the eye, so let’s review five (5) key facts about submitting under DFSP.
Income Reported and Taxes Paid
The key ingredient to qualifying for the Delinquent FBAR Submission Procedures (aside from being non-willful) is that all income taxes on income generated from the foreign account/asset income was paid. In other words, in order to avoid a penalty and qualify for these Delinquency Procedures (as opposed to the Streamlined Domestic Offshore Procedures for example) is that the taxes associated with the income generated from the account was properly included and paid on the US tax return. It presumes that the initial returns were filed timely and that amended returns are not being submitted through these Delinquent FBAR Procedures.
No Certification Form Required
Unlike the Streamlined Filing Compliance Procedures (SFCP) or the IRS Voluntary Disclosure Program (VDP), the Delinquent FBAR Submission Procedures do not require a specific certification form, such as Form 14653 or 14654. This can make it much more complicated for taxpayers to prepare because they have to develop their own submission statement, which should inform the IRS about the late filing and establish sufficient Reasonable Cause for acceptance by the IRS.
The Procedures Specifically Refer to FBAR
The Delinquent FBAR Submission Procedures refer specifically to FBAR. The reason why this is important is that there is an alternative program, Delinquent International Information Return Submission Procedures (DIIRSP), for taxpayers with more than just Delinquent FBAR (such as Form 8938). DIIRSP used to provide an automatic penalty waiver under the previous version, but it was amended in November 2020, so it no longer provides an automatic penalty waiver.
The Taxpayer Is Not Under Audit or Criminal Investigation
In order to qualify for the program, the person must not be under audit or criminal investigation. It is important to note, that if the taxpayer is under audit or investigation then they will not qualify for Delinquency Procedures. They do not have to be under audit or investigation specifically for the FBAR, which is why there is a bit of a race against the clock to submit before the person is audited or investigated (noting that currently in 2022, the IRS is operating at minimal capacity and the chance of an audit or examination is lower now than it has been for many years).
No Communications From the IRS About the FBAR
If the Internal Revenue Service already reached out to you regarding the FBAR then you no longer qualify for the Delinquency Procedures. If you have not yet been penalized but received a soft letter or other pre-FBAR Audit notice, there are other opportunities such as the Streamlined Procedures or a Reasonable Cause submission, so all hope is not lost just because the IRS may be one step ahead of you.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax and specifically IRS offshore disclosure.
Contact our firm today for assistance.