Some taxpayers may not need to use the Offshore Voluntary Disclosure Program or the Streamlined Filing Compliance Procedure options, but still may have a delinquent FBAR or Foreign Bank Account Report. FinCEN has established a procedure to address this problem.
The solution is available to those 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
Filing a FinCEN 114 or FBAR
Time is of the essence when dealing with a delinquent FBAR.
A taxpayer who has not been already contacted should immediately file the delinquent FBARs electronically according the instructions on the FinCEN website. The filing must include a statement explaining why the FBARs were filed late. Professional counsel should be retained to assist in the preparation of this letter.
On the cover page of the electronic filing, you will be required to select from options as to the reason for the late filing. If you are absolutely unable to file electronically you should contact FinCEN’s Regulatory Hotline for guidance concerning alternatives.
Keep in mind FinCEN form 114 (the FBAR) is not an IRS filing.
The IRS will not impose a penalty for the failure to file the delinquent FBARs as long as you properly reported the income on your U.S. tax return and paid the tax on the income from the foreign financial account and as long as you have not otherwise been contacted regarding an income tax examination or received a request for delinquent returns for the years in which the delinquent FBARs are submitted.
The audit process with regard to FBARs is similar to the selection process in place for tax returns. The key to curing the delinquency is to get the FBAR filed before FinCEN or the IRS comes looking for it.
Delinquent international information returns submission procedures
Taxpayers who do not need to use the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns could still have additional issues. If the taxpayer:
- Has not filed one or more required international information returns
- Had reasonable cause for not timely filing the information returns
- Is not under a civil examination or a criminal investigation by the IRS and
- Has not already been contacted by the IRS about the delinquent information returns
They should file the delinquent information returns with a statement of all facts establishing reasonable cause for the failure to file in a timely manner.
As part of the reasonable cause statement, taxpayers must also certify that any entity for which the information returns are being filed was not engaged in tax evasion. If a reasonable cause statement is not attached to each delinquent information return filed, penalties may be assessed in accordance with existing procedures.
Required attachments for amended U.S. tax returns
All delinquent international information returns other than Forms 3520 and 3520-A should be attached to an amended U.S. tax return and filed according to the applicable instructions for the amended return. All delinquent Forms 3520 and 3520-A should be filed according to the applicable instructions for those forms.
A reasonable cause statement must be attached to each delinquent information return filed for which reasonable cause is being requested. Information returns filed with amended returns 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.