I have to say today’s blog post was triggered by a phone call a few weeks ago. The would-be client wanted to report his foreign bank accounts. Apparently, this good citizen had all his I’s dotted & T’s crossed – so to speak – so what was the problem you ask? I hate to say this, but it happens more than you would think. He did not know there were additional reporting requirements involved when it came to bank accounts in foreign financial institutions. (More on FBAR thresholds in my post here)
You have to know that the IRS will not impose a penalty for the failure to file the delinquent FBARs if you “properly” reported the foreign bank accounts on your US tax returns, and paid tax on the income from these accounts and have not been contacted by the IRS for an income tax examination or a request for the delinquent returns has not been made by them.
In which case, you can file the FBARs (electronically at FinCEN) for the previous years in which the foreign bank accounts were above the $10,000 mark, including a statement explaining why the FBARs are late.
Simple? In essence- yes. But here’s what you have to remember:
1. You should make sure you are not required to report these foreign bank accounts under the Offshore Voluntary Disclosure Program (post here) or the Streamlined Domestic Procedures to file delinquent or amended tax returns to report and pay additional tax.
2. You cannot be under a civil examination or a criminal investigation by the IRS.
3. You should not have already been contacted by the IRS about the delinquent FBARs.
4. The FBARs will not be subject to audit automatically, but may be selected for audit for many other reasons that the IRS may determine.
5. All open accounts during the disclosure period should be reported. So an account could be currently closed but if it was open during the period of disclosure, details have to be provided on the FBARs.
If the above applies to you, know that a consultation with a knowledgeable Enrolled Agent specializing in Foreign Bank Account Regulations is a must.
Original Post By: Manasa Nadig