The Internal Revenue Service (IRS) and United States Department of Justice (DOJ) continue to crackdown on taxpayers who fail to disclose foreign assets. The United States Tax Code requires taxpayers disclose these assets in various situations. For example, tax law requires taxpayers report a financial interest in a bank account located outside of the United States that is valued at more than $10,000 at any point during the taxable year in question. In these situations, the government requires the taxpayer file a Report of Foreign Bank and Financial Accounts on Financial Crimes Enforcement Network (FinCEN) Form 114.
But what if the taxpayer forgets or simply was not aware of this requirement? In some cases, the taxpayer could file a delinquent FBAR.
When should I file a delinquent FBAR?
The IRS notes that delinquent FBAR filings are appropriate when the taxpayer has not filed an FBAR, is not under civil or criminal investigation by the IRS, and has not already been contacted by the IRS about a missing FBAR.
How do I file a delinquent FBAR?
Review the instructions on the form. This filing will generally also require that the taxpayer provide a statement that explains why they were unable to file their FBAR on time. The government expects the taxpayer to file these forms electronically, but other options are available in some situations.
Will I need to pay a penalty?
It depends on the details of the situation. If the taxpayer reported these assets on their tax returns and paid taxes, the government may not require additional penalty payments. If they were not disclosed, the government may consider penalties.
What is the best way to handle this situation?
Again, the answer will depend on the details. The delinquent FBAR is one option for compliance. Those who are looking to disclose assets or otherwise come into compliance with tax laws are wise to reach out to legal counsel to discuss their options and get a plan tailored to their specific situation.