What is FBAR?
The FBAR, or foreign bank account report, is required of any US citizen, residency card holder, or US tax resident who has foreign account balances over $10,000 USD at any time during the year. With regards to the FBAR, a “US tax resident” is someone physically present in the United States for over 183 days during a calendar year.
The FBAR needs to be filed electronically with the FinCEN department by April 15th, every year in which you meet the filing requirements. The required form is known as FinCEN 114 – formerly TDF 90-22.1. It is important to note that this form is only informational, and no taxes are due at the time of filing. For his reason, if you feel you may be subject to FBAR requirements, it is best to err on the side of caution and file, just in case.
What are FBAR Penalties?
When you fail to file an FBAR if required, the IRS has the legal right to penalize you for non-compliance under Internal Revenue Code Title 31 USC 5321. The law defines non-compliance as the result of either willful or non-willful actions.
If the IRS feels that non-compliance with FBAR regulations was non-willful, you may be subject to a penalty of up to $10,000 per violation, per account. This essentially means that if the IRS determines you are unaware that you are required to submit an FBAR, you are still liable for heavy penalties.
As the penalty for a non-willful violation of FBAR regulations is already steep, you’d expect that a willful violation would be much more severe. You would be right. If the IRS determines that you willfully avoided disclosing foreign bank accounts over $10,000, the penalty assessed can reach $100,000 or 50-percent of the value of the account – whichever is greater. This is, however, much lower than the previous penalty – which was 300-percent.
How Does the IRS Determine Willfulness?
To prove willfulness, the IRS has established some guidelines. It should be noted, however, that no clearly-defined rule has been established as to what is willful or non-willful. There are, though, a few crucial distinctions. Willful, for example, doesn’t mean you intentionally or knowingly deceived the government with regards to foreign or off-shore accounts. Willful is also defined as “willfully blind,” meaning you should have known that you needed to file an FBAR. Finally, the IRS considered “reckless disregard” another form of willfulness. “Reckless disregard” is a fairly low standard to prove, as it entails you knew you should have asked if you need to file an FBAR but didn’t as you didn’t want to know the answer.
Contact an Attorney
As the FBAR can mean severe financial penalties, if you have any trouble it is important that you contact an experienced tax attorney immediately. At Ayar Law, we represent people and business with state and federal tax problems that require creative solutions. We focus entirely on tax problem resolutions and giving our clients a fresh start. We strive to get you the best solution for your individual situation. So, if you’re having tax troubles call Ayar Law today at (248) 262-3400 for a free, no-obligation consultation.