Filing FBAR is an essential obligation for many taxpayers holding offshore accounts and assets in excess of reporting limits. Taxpayers that fail to file FBAR or otherwise fail to satisfy his or her offshore account disclosure duty face the risk of an IRS inquiry and additional tax enforcement action. In fact, even an accidental error regarding FBAR can result in a $10,000 penalty for each year whether account went unreported. Furthermore, if the government agent believes that your noncompliance is the product of intentional or voluntary behavior – willfulness – then penalties become even harsher and typically exceed the original account balance.
However, many taxpayers are still confused regarding the steps that they need to take to comply with this tax obligation. One source of confusion is in the form used and steps needed to file the FBAR. Understanding the proper form to file to disclose covered offshore accounts is the first step in satisfying one’s FBAR obligation.
Who Must File FBAR?
The general rule for FBAR is that all U.S. citizens and others with a tax obligation are required to file FBAR when two facts are true. First, the individual must hold signature authority over or have an interest in at least one foreign financial account. Second the value of that account or the aggregate value of all foreign accounts must exceed $10,000 at any time during the tax year. It is irrelevant if the account balance exceeds the $10,000 reporting threshold for one day or for the entire tax year. Once the $10,000 reporting threshold is exceeded, a filing obligation exists.
However certain taxpayers may fall within an exception that relieves them of their FBAR filing requirements. In other circumstances the FBAR obligation may be covered by another filing. These situations include:
- Taxpayers whose FBAR obligation is satisfied by a separate consolidated filing.
- Certain financial accounts held jointly by spouses.
- Beneficiaries and owners of U.S. based IRAs.
- Some taxpayers who have signature authority, but no actual authority over a foreign asset or account.
- Individuals holding certain financial accounts maintained at a U.S. military banking facility.
However, determining whether you fit within an expectation is a technical endeavor. Working with an experienced and dedicated tax professional can eliminate the guesswork and reduce the likelihood of facing serious offshore penalties.
How Can I File?
In years past the FBAR used to be able to be filed on a traditional paper form. However, in recent years the IRS has eliminated a taxpayer’s ability to file using a traditional pen and paper method. Therefore Form TD F 90-22.1 is no longer available and is no longer accepted by the IRS. Today, the only way to file FBAR is to do so online. Taxpayers with a FBAR filing obligation can only file FBAR by logging on to the Financial Crimes Enforcement Network’s (FINCEN) Bank Secrecy Act E-Filing system and electronically filing FinCen Form 114. Through this system a taxpayer can locate and complete the required forms.
What IRS Form Do I Use to File?
FBAR can only be filed online using FINCEN Form 114. Starting on July 1st, 2013, FINCEN Form 114 became the only accepted method of filing FBAR. When a taxpayer completes FINCEN Form 114 he or she must include all covered foreign accounts and assets, exempt assets, values of assets, and other information. However it is essential to provide the information in a format that is expected, usable, and acceptable. Some formatting items of note include:
- Telephone numbers – All telephone numbers provided in satisfaction of one’s FBAR duty should be formatted without parenthesis and hyphens. For instance, a telephone number normally formatted (123) 456-7890 should be provided on FINCN Form 114 in the format: 11234567890.
- Social security numbers – Like telephone numbers, Social Security numbers and TINS should also be formatted without hyphens.
- Reports of monetary value – Taxpayers must report the maximum value of their accounts. All accounts are required to be reported in U.S. dollars. Furthermore, taxpayers must value their accounts using accepted methods. Once the account has been properly valued, it should be reported by rounding up to the next whole dollar.
- Prohibited FBAR Form Entries – Certain common abbreviations and other text should never be entered onto the FBAR form. These prohibited phrases include: AKA, DBA, NA, SEE ABOVE, NONE, UNKNOWN, SIGNATURE CARD, VARIOUS, and other phrases.
Aside from proper formatting, it is essential that taxpayers ensure that the substance of their FBAR filing is complete and accurate. Inaccurate or incomplete FBAR filings can also result in severe consequences. If you fear that you have made errors in past FBAR filing or have yet to file FBAR, you should take immediate action.
Taking the Instructions, Then Filing FBAR
Until 2013, taxpayers had the choice between filing in an electronic or traditional format, but this is no longer an option. All taxpayers are now required to handle their entire FBAR reporting duty through the Financial Crimes Network’s (FINCEN) Bank Secrecy Act portal. From the FINCEN web portal taxpayers can access FINCEN Form 114, which is utilized for one’s FBAR filing. After accessing the form on the website, the taxpayer must complete the form in an accurate and comprehensive manner.
If you have questions regarding items on FINCEN Form 114, you should consult a tax professional. However, a brief description of some of the items requested includes:
- Filing name – This is a filer-determined name that will be used to track the FBAR. The name must be unique. Jane Doe’s 2018 FBAR or ACME123 Corporation’s 2018 FBAR would be acceptable names.
- Authorized third-party filer – This box should only be checked if the taxpayer has engaged with a tax professional. If the taxpayer is filing his or her own FBAR this box should be left blank.
- TIN – Individuals and entities with a Taxpayer Identification Number should enter it here. However, not all individuals will have a TIN. Instead, they should provide the identifying information requested in item number 4.
- Information on financial accounts – Taxpayers must provide information regarding foreign financial accounts held independently and held jointly. Separately owned accounts should be entered into Section II, Item 15, including the maximum value of the account during the past year. The type of account should be entered into box 16, the financial institution into box 17, and the account number into box 18. Additional financial institution information should be provided in boxes 19-23. Similar information regarding jointly owned accounts should be entered into Section III of the form.
- Signature authority accounts – Accounts where the taxpayer holds signature authority but does not hold an actual interest in the asset or property must be disclosed in Part IV of FINCEN Form 114.
- Consolidated FBAR information – Certain entities directly or indirectly owning more than half of an interest in another entity may file a consolidated reported. To indicate that a consolidated report is being filed, Item 2d in Section I should be selected and Section V of the FBAR should be completed.
The above covers only the basics of obtaining FBAR instructions and completing an FBAR. For many taxpayers, specific advice from a tax professional will be necessary. The FBAR lawyers at The Tax Law Offices of David W. Klasing can provide on-point guidance for annual FBAR filings, FBAR problems, and other concerns regarding offshore accounts. To schedule a reduced-rate FBAR consultation call us at 800-681-1295 or contact us online today.
How to File Your FBAR Electronically
Electronic filing is the only currently accepted method for FBAR filings. However, prior to filing online you must first prepare your Windows or OS X computer system. You should avoid using a public or shared computer to enter and transmit sensitive information of this type. You should use a trusted computer, however it is prudent to run a malware and virus scan prior to entering any sensitive personal or financial information.
Once you are logged into a trusted computer, you should ensure that Adobe Reader is properly installed and set as the default PDF reader for your web browser. If when you try to open the FBAR PDF you receive the message, “Please wait, If this message is not eventually replaced by the proper contents of the document, your PDF viewer may not be able to display this type of document”, it is likely that your PDF reader is not correctly installed. While Internet Explorer 8.0+, Firefox 19.0.2 and higher, Chrome 25+, and Safari 7.0.2 are supported, the method of setting Adobe’s PDF reader as default differs for each browser. If you have difficulty in changing your default PDF reader googling, “How to set adobe pdf as default reader in ” can provide you with instructions to satisfy this prerequisite.
Once your computer is properly configured, you should navigate to the BSA’s FBAR e-filing site. Once the page has loaded, click the “Prepare FBAR” button near the top of the page. Your browser will download the PDF. You should open it directly so that it opens in Adobe PDF Reader where you will complete the document.
The first field is titled “Filing name”. This field is an identifier and a descriptive name the fully and clearly defines your FBAR should be entered. This information can be used to identify your claim if you need assistance or support from the help desk. Once you have entered a descriptive identifier your should proceed to disclose the information requested by each line item on the FBAR form. For instance, item 2 asks about what type of filer you are. You should select the appropriate business entity for your individual account, business entity, or fiduciary duty. Brief instructions for other line items are contained in this line item guide for the BSA.
Validate, Sign, and e-File Your FBAR
Once you have completed the FBAR you should return to the first page and click the Validate button. Clicking this button will ask the PDF reader to check if you have entered data in each required box. While it may catch malformed data, it is unlike to catch mistakes where digits may be transposed. Therefore one filing an FBAR should also verify the entered data manually. If you receive an error, you should go back and correct it. If there are no errors, the PDF reader will display the prompt: “This form needs to be signed in order to submit.”
You should sign the form by clicking the Sign the Form button that is also located on the first page of the PDF document. When you click the Sign the Form button, the following message will be displayed: “I acknowledge that I am electronically signing the BSA report.” To sign the document and acknowledge your electronic signature you should click the Yes button.
Now that your FBAR has been signed, you should save it so that it can be uploaded. You can save the completed and signed FBAR PDF by clicking the Save button on the first page of the PDF. You should save the document to a location that is easily accessible, like your desktop or My Documents folder, and give the file a name so that you can identify it.
Once the file is saved, you should return to the FBAR e-filing site in your web browser and click the Submit FBAR button. On the page that opens you should enter your email address, confirm your e-mail, enter your first and last name and your phone number. You should also click the Choose File button and select the FBAR PDF that you previously saved. Once the form is complete, click the Submit button. You should be taken to a confirmation screen which will provide you with a tracking ID in the format of: FF14-0000000000. This confirmation and tracking information should also be emailed to the address you provided. You should receive a follow-up e-mail within two days that states your FBAR has been processed and that a 14 digit BSA identifier beginning with 310000 has been assigned.
By What Date Must I Submit My FBAR Filing?
For tax filings in the past, the filing deadline for FBAR was June 30 with no extension available.
However, starting in 2017 for the 2016 tax year and moving forward, the FBAR filing deadline has been moved to align with the traditional tax filing calendar. Provisions contained within the Surface Transportation & Veterans Healthcare Choice Improvement Act of 2015 moved the FBAR filing deadline for the 2016 tax year and beyond to April 15 of the following calendar year. However, under the new rules, deadline extensions will be possible to line up the FBAR requirement with extensions available for your personal tax return.
Thus, we are in a transition period for FBAR reporting. For the 2018 tax year, the FBAR deadline will be April 15, 2019, with individual extensions available./p>
Understand that the IRS recommends you retain any records of accounts that meet FBAR requirements for at least five years from the FBAR filing due date for a particular tax year. As part of these records, make sure you have the name of the account holder, the account number, the address of the foreign financial institution, and the maximum value of the account in the reporting period.
Working with an experienced tax attorney who handles FBAR and offshore disclosures can give you peace of mind that your filing will be properly handled in a timely manner.
OVDP and Other Disclosure Programs Can Mitigate the Consequences You Face
Taxpayers who have failed to file FBAR in years past or who failed to include all foreign accounts can face significant penalties. However, these penalties can often be mitigate through participation in Offshore Voluntary Disclosure programs (OVDP) or Streamlined Disclosure. While Streamlined participants can eliminate a greater amount of penalties, the risk is greater and the program should only be utilized by taxpayers in appropriate circumstances. An experienced tax attorney can help a taxpayer make this determination.
However, time is often of the essence when it comes to FBAR problems because detection and identification of your undisclosed accounts makes you ineligible for OVDP and other programs. Furthermore, if your financial institution is identified by the IRS, you will have to pay an increased offshore penalty. Therefore, taxpayers who file FBAR and take action in a timely manner regularly avoid the worst-case scenario and are able to enter back into compliance with the U.S. tax system. To schedule a reduced-rate, private FBAR consultation contact the Tax Law Offices of David W. Klasing by calling 800-681-1295 or contact us online today.
What Penalties Can I Face for Failing to File FBAR?
The major factor determining the severity of penalties you will face if you fail to file FBAR and are caught through an IRS audit or criminal tax or foreign information investigation is whether your conduct was willful, meaning intentional, or non-willful, meaning some sort of honest mistake or miscalculation. For non-willful violations, criminal penalties typically will not apply, and civil penalties will be limited to $10,000 for the non-willful failure to file an FBAR on a calendar year basis. For a willful violation, the maximum penalty is increased from $10,000 per violation to $100,000 per violation or 50% of the amount in the account at the time of the violation, and you can additionally face criminal prosecution and incarceration if you are charged with and convicted of tax evasion of offshore taxable income related to the non-disclosed foreign financial accounts and or criminal foreign information reporting failure.
How Can a Dual Licensed International Tax Attorney & CPA Help Me Get Back into Compliance?
In some situations, especially if your issue was recent and due to unintentional error, you may be able to simply amend the returns and pay what you owe. Often, however, you will need the help of a veteran tax attorney like those at the Tax Law Offices of David W. Klasing to apply for a streamlined or voluntary disclosure program to get you back into compliance.
Streamlined Disclosure
For conduct that was non-willful, you may be eligible for a streamlined voluntary disclosure program. However, it is important to note that you must certify as to your non-willfulness as a condition of entering this program, and that false certifications of non-willfulness qualify as an additional crime with additional serious penalties.
As part of the program, you will be required to amend 3 years of tax returns that includes any previously unreported offshore taxable income and 6 years of FBARs, which we can help to reconstruct. You will also have to pay back what you owe. Aside from avoiding criminal tax and offshore information reporting charges, for qualifying expats, you will also avoid the “offshore penalty” entirely. For residents, you will have to pay a offshore penalty of 5% on the highest aggregate account balances over the course of the six years of FBARs included in the program.
Offshore Voluntary Disclosure
For conduct that could easily be viewed by the federal or state taxing authorities as willful, you will need to enter an offshore voluntary disclosure program to remove the risk of criminal tax or information reporting prosecution. Currently, federal domestic and offshore voluntary disclosures fall under a combined program known as the Voluntary Disclosure Practice (VDP). The offshore version of this program allows taxpayers who are out of compliance with past FBAR and other foreign information reporting requirements, ordinarily involving evaded taxable income from offshore income producing asset, business, trusts, estates or financial accounts, to come forward and make disclosures about their, often intentional, reporting errors without facing criminal tax or foreign information reporting prosecution.
The new VDP program incorporates the old OVDP process and additionally allows for associated domestic disclosures as per traditional IRS voluntary disclosure practice. It is open to both willful and non-willful violators. In a purely domestic voluntary disclosure, in exchange for a near guaranteed pass on criminal tax and information reporting prosecution, you will have to pay all back taxes plus interest, and you will also have to pay a civil fraud penalty of 75% on the highesttax deficiency year out of 6 amended returns included in the disclosure. For an offshore voluntary disclosure, an additional penalty will be assessed of whichever is greater: 50% of the highest aggregate balance of the account over the six-year period of the FBARs, or $100,000.
Our Attorneys Can Help
The penalties for failure to disclose your offshore accounts can be devastating, and could have lasting negative repercussions for your career and your future. To schedule an initial reduced-rate consultation with an experienced California FBAR lawyer, call The Tax Law Offices of David W. Klasing at (800) 681-1295, or contact our law offices online today.
