Delinquent FBAR Submission Procedures & How to Qualify (Summary 2020)

By Golding & Golding, Board-Certified Tax Law Specialist on January 20, 2020

Delinquent FBAR Submission Procedures

Delinquent FBAR Submission Procedures: A common question we receive is about eligibility and qualifying for the IRS Delinquent FBAR Submission Procedures work — and how to submit delinquent FBARs for prior years. The FBAR is the Report of Foreign Bank and Financial Account Form (FinCEN Form 114). The failure to report the form timely may result in significant fines and penalties. In recent years, the IRS has taken aggressive approach to enforcement of foreign accounts compliance. In order to avoid penalties, the IRS developed delinquent FBAR Amnesty programs to assist with late filing of forms. FBAR Amnesty is also referred to as Offshore Voluntary Disclosure.

Delinquent FBAR Submission Procedures

The delinquent FBAR submission procedures are a very specific niche in offshore disclosure. This is because it requires the Taxpayer to have the limited issue of delinquent FBAR filing. Oftentimes, a person will have other issues, such as FATCA Form 8938, Foreign Gift Form 3520, Foreign Trust Form 3520-A, and Foreign Corporation reporting on Form 5471. When a person’s non-compliance is limited to FBARs, and the taxpayer is non-willful – the delinquent FBAR submission procedures may be a good option.

Who is Eligible to Qualify for Delinquency FBAR

As provided by the IRS:

Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but who:

have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1),
are not under a civil examination or a criminal investigation by the IRS, and
have not already been contacted by the IRS about the delinquent FBARs

should file the delinquent FBARs according to the FBAR instructions.

Follow These Steps to Resolve Delinquent FBARS

Review the instructions
Include a statement explaining why you are filing the FBARs late
File all FBARs electronically at FinCEN
On the cover page of the electronic form, select a reason for filing late
If you are unable to file electronically, contact FinCEN’s Regulatory Help line at 1-800-949-2732 or 1-703-905-3975 (if calling from outside the United States) to determine possible alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.

Are There FBAR Penalties?

Under the delinquency procedures, the IRS waives the penalties (as it does under Streamlined Foreign).In other words, if a person does not have unreported income and has reasonable cause sufficient to qualify for delinquency, then penalties are generally waived. But, the caveat is that the IRS is not promising it will not audit the returns. If the returns become subject to FBAR Audit, there is still the potential for penalties being issued at that time.

How Many Years of Prior Year FBAR Filing?

The FBAR has a six (6) year statute of limitations. Unlike the Tax Code, the FBAR falls under Title 31 and not Title 26. Title 31 refers to AML, which is Anti-Money Laundering, and technically the FBAR has nothing to do with “tax.” Since the FBAR is handled under a different section of the U.S.C., the penalty assessment and enforcement procedures will differ as well.

Generally, a U.S. person with foreign accounts will file 6-years of prior year delinquent FBAR forms. Any further back filing, and it may resurrect an already expired statute of limitations. If the six most recent years are not in compliance, it may leave the taxpayer open to significant fines and penalties as well.

What is a Reasonable Cause Statement?

The delinquent FBAR submission procedures require the taxpayer to prepare and file a Reasonable Cause Statement. Unlike the Streamlined Domestic and Streamlined Foreign Offshore procedures, the Delinquency Procedures requires the taxpayer submit a reasonable cause statement. We have represented several hundred clients with reasonable cause statement submissions and have been very effective in avoiding and eliminating penalties.

There is no “form” reasonable cause letter statement. Rather, the client must refer on the knowledge of the attorney. This is why it is crucial to retain a Board-Certified Tax Law Specialist who is dually-licensed. This helps to protect the attorney-client privilege.

Beware of attorneys who refer an active case to an outside CPA. There is no Kovel protection for accountant tax return preparation, and may jeopardize the attorney-client privilege.

Alternatives to Delinquent FBAR Submission Procedures

The term “Delinquent FBAR” is a catchall that refers to the different types of programs that can be used to report late or delinquent FBARs. It does not refer specifically to the Delinquent FBAR Submission procedures, but rather delinquent offshore reporting in general.

When a person has delinquent FBARs and delinquent income and/or other international information reporting forms that have not been filed, the taxpayer must consider the other offshore disclosure options. When the taxpayer has only information return reporting requirements, and no unreported income, the general “Delinquent International Information Return Submission Procedures,” may be a good option.

The different offshore programs are summarized on our website.

Main FBAR Amnesty Programs, include:

IRS Voluntary Disclosure (aka New Updated OVDP)
Streamlined Filing Compliance Procedures
Streamlined Domestic Offshore Procedures
Streamlined Foreign Offshore Procedures
Delinquent International Information Return Submission Procedures

Eligibility for these programs depends on which program the taxpayer applies to. For example, for the Streamlined Domestic program, the person must have timely filed original tax returns. For the Streamlined Foreign program, the taxpayer must qualify as a Foreign Resident under the specific requirements of the program. For Delinquency Procedures, the Taxpayer must not have material revisions to the income and tax portion of the tax returns. And, for IRS Voluntary Disclosure the money must be legally sourced.

We Specialize in Streamlined & Offshore Voluntary Disclosure

We specialize exclusively in international tax, and specifically IRS offshore disclosure.

We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Case Highlights

We represented a client in an 8-figure disclosure that spanned 7 countries.
We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Streamlined Counsel?

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

Board Certified Tax Law Specialist credential
Master’s of Tax Law (LL.M.)
Dually Licensed as an EA (Enrolled Agent) or CPA
20-years experience as a practicing attorney
Extensive litigation, high-stakes audit and trial experience

Interested in Learning More about our Firm?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant.

We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.