I Missed the FBAR Filing Deadline, What Should I Do Next?

What Should I Do If I Missed the Deadline for Filing FBAR?

Missed the Deadline for Filing FBAR?

The FBAR refers to the foreign bank and financial account reporting form, FinCEN Form 114. When a person is deemed a U.S. person for tax purposes and they have an ownership interest or signature authority over foreign accounts, they may be required to file the annual FBAR in any year that they meet the threshold requirements for reporting the account. The threshold requirement for filing the FBAR is met when the taxpayer has more than $10,000 in annual aggregate total between all his accounts on any day of the year (not per account but the total value amongst all accounts). When taxpayers do not file the FBAR on time, they are considered ‘delinquent’ and required to go back and file late FBARs. While the internet would make it seem that taxpayers who fail to file FBAR are automatically subject to extensive foreign account reporting fines and penalties, that is not always the case — and depending on their specific facts and circumstances taxpayers may secure a penalty waiver or significantly reduced penalty.  Non-willful taxpayers (most taxpayers are non-willful) have four (4) main filing options for filing late FBAR. 

First, Taxpayers Must be Non-Willful to Qualify for These Programs

The most important aspect of qualifying for these programs is that the filer is non-willful. Taxpayers will find a lot of information online explaining the difference between willful and non-willful — and unfortunately many of those resources are inaccurate or designed to simply fear-monger unsuspecting Taxpayers. In general, if a Taxpayer did not act with intent, reckless disregard, or willful blindness, they should qualify as non-willful. When a taxpayer is willful, they do not qualify for these programs summarized below and instead qualify for the IRS Voluntary Disclosure Program.

Streamlined Offshore Procedures (Domestic and Foreign)

For several years, the most common method for non-willful taxpayers to file missed FBAR has been to submit to the Streamlined Filing Compliance Procedures (SFCP). There are two versions of the program depending on whether the taxpayer is considered a U.S. resident or a foreign resident. Taxpayers who are foreign residents can qualify for the Streamlined Foreign Offshore Procedures (SFOP) and may be eligible for a penalty waiver — so that they owe no offshore penalty on their delinquent FBAR filings. Alternatively, taxpayers who do not qualify for the Streamlined Foreign Offshore Procedures (SFOP) may qualify for the Streamlined Domestic Offshore Procedures (SDOP) which requires the taxpayer to pay a 5% offshore penalty.

Delinquent FBAR Submission Procedures

If a taxpayer has no unreported income and the only form they have to file is the delinquent FBAR, then they may qualify for the Delinquent FBAR Submission Procedures (DFSP). Under these procedures, taxpayers submit delinquent FBARs with a statement explaining their non-compliance and may qualify for an FBAR penalty waiver. While the IRS does not guarantee a penalty waiver, the Internal Revenue Service has been consistent with issuing penalty waivers when the only missed form is the FBAR — and there is no unreported income.

Delinquent International Information Return Submission Procedures

Some taxpayers have delinquent FBAR filing requirements but also have to file other missed forms such as Form 8938, Form 8621, and/or Form 3520. In this type of situation, the taxpayer does not qualify for the Delinquent FBAR Submission Procedures but instead qualifies for the Delinquent International Information Return Submission Procedures. This program is similar to the delinquent FBAR procedures except that the IRS has become less inclined to grant an automatic penalty waiver. In years past, the IRS was more inclined to grant the waiver but ever since November 2020 the IRS determined taxpayers would have to make a stronger showing to qualify for the automatic penalty waiver.

Reasonable Cause

Reasonable cause is a catch-all category for taxpayers who have unreported foreign accounts and assets, but either do not qualify for the streamlined procedures, qualify for the Streamlined Domestic Offshore Procedures and do not want to pay the 5% penalty upfront, or do not qualify for delinquency procedures (because they have unreported income in addition to unreported accounts/assets). There are pros and cons to making a reasonable cause submission and taxpayers considering making a reasonable cause submission should consult with an experienced Board-Certified Tax Law Specialist practitioner before making any proactive representation to the IRS.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.  *This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.  Contact our firm today for assistance.