How to Avoid Common FBAR Errors (Amend or File Late FBAR)

How to Avoid Common FBAR Errors

Each year, US Persons who have foreign financial accounts and meet the threshold for reporting may have to report these accounts annually on the FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114). In general, the FBAR is not as complicated as many of the other international reporting forms, such as Forms 5471, 3520-A, and 3520 –- but that does not mean the FBAR is without headaches. If you were getting ready to prepare your 2021 FBAR (which is due to be filed in 2022) and start to recognize that familiar feeling of uneasiness as you begin preparing your taxes, just remember that more often than not, it’s going to be just fine. Let’s go through some of the top 15 FBAR reporting mistakes to avoid this season.

*Originally Publication Date: 8/2019

TD 90-22.1 Form Is No Longer Used

These days, the FBAR is filed using FinCEN Form 114 — even though the form may still be included with some commercial tax software. The FBAR is generally filed directly on the FinCEN website, and the document is available on the FinCEN website as well.

FBAR Is Handled Electronically

Previously, Taxpayers would file the Form TD-90 by paper, but since 2013, the form is now electronic, unless some very narrow and specific exception applies.

Submit the FBAR on the FinCEN Website

Do not print out the form and attach it to your tax return. Rather, submit the Form electronically on the FinCEN (not IRS) website.

FBAR Due Date May Still Be on Automatic Extension

Prior to 2016, the due date was June 30 with no extensions. Since then, the FBAR due date has been April 15, but it has been on automatic extension at least through the 2020 FBAR due date. Since there were previous extensions in prior years, it may still be on extension this year as well, but be sure to double-check as April approaches.

It Is Not a $10,000+ Threshold for Each Account

The threshold for having to file the FBAR is if there is an annual aggregate total of more than $10,000 when totaling up the value of all the accounts. It includes nearly all foreign accounts, including those that have a low-dollar value, are dormant, or were opened prior to the filer obtaining US status. In other words, if the $10,000+ threshold is exceeded, then all of the accounts must be reported on the FBAR.

Signature Authority

Unlike Form 8938 (which is only required for Taxpayers who have an interest in the account), the FBAR is required whether or not a person has ownership, co-ownership, or merely signature authority such as on behalf of a parent or an employer.

FBAR Is Required Even if No Tax Return Is Filed

The FBAR has nothing specifically to do with taxes, aside from the fact that the IRS is tasked with enforcement. Thus, even if you are not required to file the US tax return if you otherwise qualify as a US person then you are still required to file the FBAR if the threshold is met.

Minor Children Have to File FBAR Too

There is no exception for minors, so your child’s “Child Trust Fund” in the UK or other type of custodial account is still reportable.

Includes Joint Accounts with Non-US Persons

If the US person shares a joint account with a foreign person, while the foreign person does not have to file the FBAR, the US person must still file the FBAR and identify the joint account holder –– although just how much information about the non-US person is included on the FBAR is something to discuss with your Tax Attorney.

6013(g) Election vs US Person Status

Just because a person makes a 6013(g) election to be treated as a US person for tax purposes — such as when filing a joint return with their US Person spouse — does not necessarily make them a US person for FBAR purposes.

FBAR Is Not Just Bank Accounts

The FBAR is more than just bank accounts; the form includes other types of accounts as well such as investment accounts, foreign pension plans, and foreign life insurance policies with a surrender/cash value.

Current Year Exchange Rates

It is important that when you are conducting the exchange rates for your foreign accounts – as the FBAR requires account reporting is in US Dollars, be sure to use the current year’s exchange rates and not a prior year’s rate.

Do Your Best With the Information You Can Get

This is not a test, and the results do not go on your permanent record. Just do the best you can to get the most information you can and as accurately as you can, with the understanding that some institutions do not hold onto account information while other institutions may only update the account when the person meets with the bank in person (e.g., passbook accounts) –– and with Covid that may make the latter impossible to obtain.

Missing Foreign Account Information does Not mean Avoid FBAR Filing

If you happen to be missing some information for the FBAR, that does not mean you are exempt from filing the FBAR. Rather, you will want to submit using the best information you can after conducting a diligent and reasonable search for the information.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and 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 that 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. 

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.