FBAR Late Filing Penalty and How to Submit Delinquent Forms
FBAR Late Filing Penalty and How to Submit Delinquent Forms: The FBAR Late Filing Penalty originates from the failure to timely report offshore accounts, assets, and investments on the FBAR (aka FinCEN Form 114). The form is due to be filed at the same time your tax filing is due. The failure to file a timely FBAR may result in significant fines and offshore penalties. And, with the IRS taking an aggressive approach to foreign accounts compliance and unreported foreign income, it is important to stay compliant.
A common question we receive is how to submit Delinquent FBAR forms to the IRS. As with anything involving the Internal Revenue Service, the answer is – it depends.
FBAR Late Filing Penalty
The FBAR Late Filing Penalty is complicated. Technically, there is no “late filing penalty.” Rather, when a person does not submit a timely or complete FBAR, they may become subject to penalties. There are no “additional” penalties for late filing.
How to Submit Delinquent FBAR Forms
In order to get into compliance, a U.S. person has two requirements:
- Submit the current year timely; and
- Submit for prior years.
If a taxpayer decides to simply file the current year return, and not file for past years, this is referred to as “filing forward.” Filing forward is illegal, since it is does not account for past FBAR misdeeds. A filing forward FBAR situation is also referred to as a quiet disclosure or silent disclosure.
If a person gets caught in quiet disclosure, the penalties can be bad.
FBAR Penalties for Late or Incomplete Foreign Account Reporting
The FBAR Penalties analysis is complex:
FBAR Civil Penalty (31 U.S.C. § 5321 et seq.)
The FBAR Penalty will be either a Civil FBAR Penalty and/or Criminal FBAR Penalty. They can then be broken down further, but the threshold question, is whether the IRS will get you for Civil (money) or Criminal (money, and worse).
The civil FBAR penalty is limited to monetary penalties. A civil FBAR Penalty is a penalty that is focused on monetary fines or warning letters (waivers) — without any risk of criminal investigation or prosecution.
| U.S. Code citation | Civil Monetary Penalty Description | Current Maximum |
|---|---|---|
| 31 U.S.C. 5321(a)(5)(B)(i) | Foreign Financial Agency Transaction – Non-Willful Violation of Transaction | $12,921 |
| 31 U.S.C. 5321(a)(5)(C) | Foreign Financial Agency Transaction – Willful Violation of Transaction | Greater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D) |
| 31 U.S.C. 5321(a)(6)(A) | Negligent Violation by Financial Institution or Non-Financial Trade or Business | $1,118 |
| 31 U.S.C. 5321(a)(6)(B) | Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business | $86,976 |
Criminal FBAR Penalty (31 C.F.R. §103.59)
A criminal FBAR Penalty may include monetary penalties and incarceration. This is when the IRS refers the matter to the Department of Justice (DOJ) or other 3 letter government faction for criminal investigation and possible prosecution. These are not very common, but unfortunately they are on the rise.
| U.S. Code citation | Criminal Violation & Description | Criminal Penalty |
|---|---|---|
| 31 C.F.R. §103.59(b) | Willful – Failure to File FBAR or retain records of account | Up to $250,000 or 5 years or both |
| 31 C.F.R. §103.59(c) | Willful – Failure to File FBAR or retain records of account while violating certain other laws | Up to $500,000 or 10 years or both |
| 31 C.F.R. §103.59(c) | Knowingly and Willfully Filing False FBAR | $10,000 or 5 years or both |
| Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d). | See Statutes | See Statutes |
What are Delinquent FBAR Submission Procedures?
Some individuals may escape FBAR penalties “the easy way” by submitting to the Delinquent FBAR Submission Procedures.
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:
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have not filed a required Report of Foreign Bank and Financial Accounts (FBAR) (FinCEN Form 114, previously Form TD F 90-22.1),
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are not under a civil examination or a criminal investigation by the IRS, and
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have not already been contacted by the IRS about the delinquent FBARs
Follow these steps to resolve delinquent FBARS
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Review the instructions
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Include a statement explaining why you are filing the FBARs late
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File all FBARs electronically at FinCEN
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On the cover page of the electronic form, select a reason for filing late
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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.
FBAR Amnesty for Delinquent, Late or Incomplete FBAR Filing
There are several FBAR Amnesty programs a person can apply for, depending on the facts and circumstances of their case. With FBAR Amnesty, foreign bank account reporting penalties may be reduced, minimized or eliminated. If Amnesty is unsuccessful, a person may also pay the fine and then sue the IRS in federal court (or wait to be sued, and then cross-file).
*FBAR penalties are not the result of “tax liabilities.” Therefore litigating in tax court is not an option.
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