In recent years, the IRS has aggressively enforced foreign bank and financial account reporting requirements. The Foreign Bank and Financial Account Report is a financial filing requirement used by individuals with foreign assets. U.S. persons are required by law to submit the FBAR by the April 15th IRS filing deadline. Taxpayers who do not comply with FBAR conditions could face substantial offshore fines as well as harsh penalties.
However, the IRS has developed various FBAR Amnesty Programs to help non-compliant taxpayers bring their reporting into compliance. If you are facing FBAR violations, you may need to pursue an FBAR Amnesty Program to get your accounts into IRS compliance and avoid civil or criminal repercussions.
If you have failed to properly report foreign bank and financial account information, an FBAR Amnesty Program can help resolve your Foreign Account Compliance issues. A seasoned FBAR attorney from Abajian Law can guide you through this intricate reporting process. In fact, many clients are unaware of the FBAR Amnesty Program options available for them.
This in-depth guide examines a variety of FBAR Amnesty Programs available to non-compliant taxpayers.
According to the Financial Crimes Enforcement Network (FinCEN), a U.S. person must file for FBAR if they have a financial interest or signature authority over foreign financial accounts. The IRS defines a U.S. person as a citizen or resident of the country. Entities like limited liability corporations and trusts formed in the United States can be considered U.S. persons as well.
FBAR refers to the FinCEN Form 114 (often called the Report of Foreign Bank and Financial Accounts). The FBAR is generally required if the foreign financial account’s aggregate value exceeds $10,000 USD at any point in a calendar year.
Under FBAR, foreign accounts could include:
Even taxpayers with small amounts of foreign assets are encouraged by the IRS to review FBAR filing requirements. It is important to note that filing a tax return is not the same thing as submitting FBAR filings. The FBAR Form 114 should be filed separately from a person’s tax return and directly with FinCEN. FBAR rules and regulations are prone to change from year-to-year, so foreign account investors are advised to vigilantly monitor FBAR rules and regulatory updates to maintain compliance.
For example, under FinCEN Notice 2020-2, although it states that a foreign account holding virtual currency is not currently reportable on the FBAR, it continues to state that“FinCEN intends to propose to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account.” Thus, taxpayers should be monitoring upcoming updates from FinCEN to determine whether their accounts may be reportable in the near future.
The following FBAR Amnesty Programs can support compliance efforts:
Filing the FBAR requirements can be a complex process. But an experienced FBAR attorney from Abajian Law can guide you through the procedures and help taxpayers minimize or avoid steep fees, penalties, or criminal charges.
In recent years, the IRS has increased efforts to combat intentional and unintentional foreign tax evasion. Knowing the filing dates and submission process can help taxpayers keep their foreign accounts and assets in compliance. Since FBAR is different than the standard tax return, it is filed through FinCEN, not the IRS.
Despite a Foreign Earned Income Exclusion or foreign tax credit, certain taxpayers may still be required to file an FBAR. Though FBAR filing must be completed by the April 15th deadline, taxpayers are automatically granted a deadline extension to October 15th. With these key FBAR filing factors in mind, here are the steps required for successful FBAR filing:
That said, even though taxpayers are granted an automatic deadline extension, a late deadline filing penalty is still a possibility. Whether intentional or unintentional, failing to accurately report foreign assets or income could result in substantial repercussions. Skilled FBAR tax attorneys can provide the knowledge and experience needed to successfully navigate the nuances of each FBAR Amnesty Program and find the process that is best suited to your needs.
U.S. persons are required by law to comply with U.S. tax laws. The Voluntary Disclosure Program (VDP) facilitates tax compliance for willful taxpayers. A thorough and timely VDP submission helps the IRS assess the taxpayer’s circumstances and determine which penalties may apply. In these instances, the U.S. may abstain from pursuing criminal prosecution.
Offshore Voluntary Disclosure (OVDP) was a program that assisted U.S. taxpayers with disclosing offshore accounts, income, or investments that were previously not reported. However, be advised that this program ended in 2018, and there are substantial changes to the original OVDP requirements.
This disclosure option may be the ideal option for taxpayers who cannot certify non-willfulness under the penalty of perjury. Since offshore disclosure requirements and procedures are ever-evolving, seeking skilled FBAR legal counsel from Abajian Law can be advantageous to taxpayers who find themselves in breach of FBAR requirements.
Under IRS Streamlined Procedures, taxpayers can file three years of amended or original tax returns and submit an FBAR FinCEN Form 114 for six years. In order for a taxpayer to be eligible for streamlined programs, they must be certifiably non-willful under penalties of perjury. Also, they must not be under an IRS audit.
Streamlined Procedures require qualifying taxpayers to:
It is important to note that VDP and Streamlined Procedures require separate submissions. If you apply for Streamlined Procedures and are rejected, you will not be able to go back and apply to VDP. Abajian Law’s experienced FBAR lawyers can guide you through the submission process.
Streamlined Domestic Offshore Procedures (SDOP) are applicable to U.S. resident taxpayers. If you are a foreign resident living anywhere in the world, you can get a full penalty waiver under the Streamlined Foreign Program designed by the IRS for non-willful foreign residents. Following some strict guidelines, particularly the non-willful conduct and non-residency, the filers are not required to have filed original tax returns on-time. This unique program aims to bring persons with undisclosed foreign income, assets, accounts, and investments into IRS offshore compliance. Moreover, compliant individuals get all penalties on tax and assets accounts waived in totality.
Before November 2020, the IRS had designed the Delinquent International Information Return Submission Procedures (DIIRSP), which served as an alternative to the streamlined program for persons whose tax returns did not require modification on income or other substantive aspects.
In such instances, taxpayers were allowed to make amendments to previous returns, offer detailed explanations of why they missed some fillings, and show that they were non-willful and typically have fees and penalties waived.
As of November 2020, however, this is no longer applicable. Although some penalties can be avoided, they are not automatically waived (even in cases where U.S. persons have no unreported income).
The Delinquent FBAR Submission Procedures (DFSP) is a less formalized program that allows non-willful U.S. residents and taxpayers to bring their accounts into compliance. The delinquent FBAR program may be available when the pending issue rests on the non-filing of FBAR, and there is no need to amend tax returns. Similarly, a person can benefit from this program if they are not under civil or criminal scrutiny by the IRS.
The procedure can also be used if the IRS has not contacted a person about FBAR delinquency.
If reasonable cause can be proven, it could help U.S. and foreign residents avoid the Streamlined Domestic Offshore Program’s 5% penalty – especially if they don’t meet the threshold for the delinquency programs. Reasonable causes rely on the IRS not finding a person to be in willful violation of FBAR filing requirements.
According to IRS Publication 5569, failure to file a timely and accurate FBAR can ensnare taxpayers in a web of penalties and fines-or criminal consequences. Penalties could include a fee of $100,000 or 50% of the account balance at the time of the violation. The amount due is determined by whichever amount is greater. However, if the IRS determines that a U.S. person has carried out a willful violation, they could be subject to additional criminal punishment.
If you have failed to file a timely or accurate FBAR, you should take preemptive actions as soon as possible. Thankfully, you can take steps to minimize the impact of filing a late FBAR. For instance, the IRS may not impose delinquent FBAR penalties if you properly report your income for your U.S. tax returns and have not been contacted by the IRS.
Any U.S. person holding qualified accounts in a foreign country is required by law to file FBAR. If you are unaware that your foreign accounts need to be reported to the IRS, you may be able to prove that you are non-willful and your failure to report was a genuine mistake. A tax attorney can advocate on your behalf to minimize or erase FBAR delinquency-related fees and penalties.
Failure to Report Beneficial Ownership
Beneficial ownership points to having a financial interest in an account or assets even if you are not the official owner. A U.S. person is obligated to file an FBAR if they have a beneficial interest in an account.
The Los Angeles tax attorneys at Abajian Law have the knowledge, experience, and proven results you need to confidently take on the IRS. When it comes to navigating foreign accounts and income reporting, your best defense is a preemptive reporting strategy. Abajian Law has successfully resolved many complex tax law cases for our clients. Our dedicated legal team is standing by to answer your questions and provide the winning support your case deserves.
If you have questions about FBAR Amnesty Programs, contact our office today. The skilled tax attorneys at Abajian Law can support your IRS compliance efforts.
Call one of our dedicated tax lawyers today at 818-396-5059.