The U.S. Tax Code is a complex beast. Navigating the rules for reporting assets and filing the appropriate forms is no easy task. Add additional factors like business interests and foreign assets, and the process can quickly become unmanageable.
What happens when you make a mistake? What if you realize you were supposed to file a form but did not?
The answer will depend on the details of the situation. Those with a history of tax issues face an uphill battle, while those with a clear record and history of regularly reporting assets may be okay. The form you forgot to file can also impact the potential penalties.
The following will dive into some information that applies when a taxpayer fails to file a Report of Foreign Bank and Financial Accounts (FBAR).
Will I face a penalty?
There are situations where the Internal Revenue Service (IRS) will not impose a penalty for a failure to file an FBAR. This can include instances when, although the taxpayer did not file the FBAR, they did report the asset on their U.S. tax return and paid taxes on the income from the foreign financial account. Those in this situation who have not received contact from the government about a tax issue may also not face penalties.
What should I do?
Again, the exact process depends on your situation, and it is wise to seek legal counsel experienced in this niche area of tax law. In general, the IRS recommends filing a delinquent FBAR if the following apply:
- Failed to file an FBAR,
- Are not under investigation by the IRS, and
- Was not contacted by the IRS about a delinquent FBAR.
If you satisfy these factors and you do not need to move forward with the IRS Criminal Investigation Voluntary Disclosure Practice or Streamlined Filing Compliance Procedures for delinquent or amended returns, filing a delinquent FBAR may be the right approach. If this is your approach, including a statement with the late filing explaining the reason for the error is also important. Remember, the IRS, CI and DOJ look to your footfalls—both before and after you make your late disclosure.