FBAR Instructions

A Simple FBAR Instructions Guide

The Foreign Bank Account Reporting form known as the FBAR is due to be filed by US persons with offshore accounts. While the Form itself is not as complex as other IRS International Reporting Forms — FBAR Instructions published by the US Government tend to be unnecessarily complex. There are various FBAR Instructions & Guides published each year for FBAR Filing, but they are oftentimes complex, convoluted, and inaccurate. The IRS and FinCEN do not see eye-to-eye on what should be included on the form. Making matters worse, the Internal Revenue Service has increased enforcement of foreign accounts compliance.  U.S. persons with unreported offshore accounts, assets, and investments may be subject to offshore fines and penalties for noncompliance. While the threshold filing requirements are relatively low, the penalties can be high. Even though the FBAR is less complicated than many other Department of Treasury reporting forms, it can still be difficult to complete. If you are out of compliance, it is important to note that the TRS has developed various FBAR Amnesty programs, which are collectively referred to as Offshore Voluntary Disclosure.

First, Beware of Fear-Mongering, Free Consultations & False Claims of Being ‘Board-Certified’

Several times each month, our international tax law specialist team is contacted by Taxpayers who were fear-mongered into believing that they would be going to prison or even deported for failing to report their foreign income or assets. They are oftentimes also misled by the attorney they were speaking to that the attorney was a Board-Certified Tax Law Specialist when they are not. Here are a few tips:

1. 1. 1. Make sure your antenna is up when speaking on a ‘free offshore disclosure consultation’ because these attorneys will oftentimes claim to be ‘experts’ and employ fear-mongering tactics designed to unnecessarily scare Taxpayers with examples that have no relation to the caller’s  facts and circumstances.

      2. Just because the attorney claims to be board-certified, does not make it so. Some unethical attorneys falsely claim to be board certified as a tax law specialist. If the attorney claims to be a Board-Certified Tax Attorney, ask them which state they are certified in so you can confirm. Any attorney who is board-certified, even if all they practice is federal law, must be Board-Certified by at least one State Bar association. Also, just having a CPA on staff does not make a firm  a ‘Board-Certified Tax Lawyer Specialist.’

Golding & Golding 10-Step FBAR Instruction Filing Guide

These FBAR instructions are designed to assist you with understanding the FBAR if you are filing for the current year not out of compliance for prior years. It is not intended for you to rely (or your tax professional) on to actually file the form. The summary is basic, and there are many other factors that may impact your specific filing, especially if it is a late filing.

Are you a U.S. Person?

The form must be filed by U.S. persons. In order to confuse you, the IRS does not define a US person to mean the same as U.S. Citizen. A US person typically falls into three categories: U.S. Citizen, Legal Permanent Resident, Foreign National who meets the IRS Substantial Presence Test (typically individuals on H-1B Visa, L-1 Visas, and E-2 Visas – although it is not a requirement to have one of these Visas). If you are a US person, then you move on to step two.

Do You Meet the Threshold Requirements?

The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does that total amount exceed $10,000? If it does, then you have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.

Identify What is an Account

This is one of the more difficult parts of the job. That is because when a person thinks of financial accounts, they typically think of a “Bank Account.” It makes sense since the word “Bank” is included directly in the FBAR definition. Therefore, many people (understandably so) will only focus just on bank accounts. Unfortunately, you have to include all financial accounts unless it is otherwise excluded (and there are only a few exclusions). Some examples of other accounts include:

• • • Stock accounts that have an Account Number

    • Private Pension Accounts

    • Investment Accounts

    • Foreign Mutual Funds and ETF Accounts

    • Foreign Life Insurance that has a Surrender Value

How Many Accounts Do You Have?

This is an important question, because if you have more than 25 accounts then you do not have to list all of the accounts on the actual form. Rather, you maintain your own records so that the IRS contacts you on a future date, you will have that information available. Like most people, if you have less than 25 accounts then you would report all the accounts on the FBAR. It does not matter if your account has a zero balance, and it does not matter if the account was “dormant.” If the account is open and you are listed on the account, you have to report it.

What is Your Relationship to the Account?

There are different sections of the FBAR. The sections are broken down into three main categories, which include ownership of the Account, co-ownership or joint ownership of the account, and signature authority and/or no monetary interest in the account. The latter category typically includes people who may have been included on the account in an emergency when a parent or elderly individual is getting on age. Also, if you are an employee and you have signature authority, that is included as well.

Categorize the Different Accounts

It is important that you prepare separate categories to identify each different type of account. That is to make sure that, for example, you do not report an account you have signature authority in this section that is labeled account ownership because then the IRS and U.S. government will believe that the money listed is your own money — as opposed to money for which you may have no ownership over.

Determine the Maximum Balance

You are not required to search for the Holy Grail of maximum balances. In other words, you should do the best you can. If you have bank statements for each month, then you would use each month’s statement to determine what the maximum value is. Likewise, if you have a passport account passbook account and you only get it updated when you enter the bank, then you will have to use the best value you can. Thereafter, make sure you have identified the maximum balance available for each account.

Exchange Rates

You are not required to use any specific exchange rate, but it has to be reasonable. Both the Department of Treasury and the IRS each publish their own annual exchange rates and feasibly, either exchange rate would be okay to use. It is important to make sure that you use the respective exchange rate for the year at issue. Sorry for those of you with euros, rupees or rubles who want to use current exchange rates for prior years. If you are submitting to one of the offshore disclosure programs or a reasonable cause statement and have to go back six years, then you will have to use the rate that was available six years ago and not today’s rate for filing prior forms.

Complete the FBAR

The FBAR is relatively simple from a preparation standpoint. In other words, for each account, you will identify the name of the institution, the address, and the maximum balance. There’s not much more needed beyond this information. If you are unable to access the maximum balance or even come up with your best estimate, you can mark off the maximum balance unknown for each account to which this is applicable. Keeping in mind, that the more you marked off “maximum balance unknown” the higher the chance that the FBAR might be further scrutinized. If you are in this type of situation, please be sure to speak with an experienced Offshore Disclosure Lawyer first.

What if I Made a Mistake on the FBAR?

It depends on the type of mistake. For example, was it a mistake in reporting the balance or were accounts completely missed? If it was inaccurate reporting, then the level of the inaccuracy may determine what steps the filer should take to resolve the inaccuracy.  For missed accounts, the filer will generally have to go back and resolve the issue with one of the FBAR Amnesty Programs.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them. *Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or 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 who 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. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.