Delinquent FBAR Submission Procedures - 2020 IRS Late Delinquent FBAR Submission Procedure Update

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Delinquent FBAR Submission Procedures & the IRS

The IRS Delinquent FBAR Submission Procedures are complex. A common question we receive is about how eligibility and qualifying for the program works -- and how to submit delinquent FBARs for prior years.

The FBAR is the Report of Foreign Bank and Financial Account Form (FinCEN Form 114).  The failure to report the form timely may result in significant fines and penalties.

In recent years, the IRS has taken aggressive approach to enforcement of foreign accounts compliance. In order to avoid penalties, the IRS developed delinquent FBAR Amnesty programs to assist with late filing of forms. FBAR Amnesty is also referred to as Offshore Voluntary Disclosure.

What are the IRS FBAR Delinquency Procedures?

The delinquent FBAR submission procedures are a very specific niche in offshore disclosure. This is because it requires the Taxpayer to have the limited issue of delinquent FBAR filing. Oftentimes, a person will have other issues, such as FATCA Form 8938, Foreign Gift Form 3520, Foreign Trust Form 3520-A, and Foreign Corporation reporting on Form 5471. When a person’s non-compliance is limited to FBARs, and the taxpayer is non-willful – the delinquent FBAR submission procedures may be a good option.

Who is Eligible to Qualify for Delinquency FBAR Submission Procedures

As provided by the IRS:

Taxpayers who do not need to use either the OVDP or the Streamlined Filing Compliance Procedures to file delinquent or amended tax returns to report and pay additional tax, but 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

should file the delinquent FBARs according to the FBAR instructions.

Follow These Steps to Resolve Delinquent FBARs
Review the instructions
Include a statement explaining why you are filing the FBARs late
File all FBARs electronically at FinCEN
On the cover page of the electronic form, select a reason for filing late
If you are unable to file electronically, contact FinCEN's Regulatory Help line at 1-800-949-2732 or 1-703-905-3975 (if calling from outside the United States) to determine possible alternatives to electronic filing.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

FBARs 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.

Are There FBAR Penalties under the Delinquency Procedures?

Under the delinquency procedures, the IRS waives the penalties (as it does under Streamlined Foreign).In other words, if a person does not have unreported income and has reasonable cause sufficient to qualify for delinquency, then penalties are generally waived. But, the caveat is that the IRS is not promising it will not audit the returns. If the returns become subject to FBAR Audit, there is still the potential for penalties being issued at that time.

How Many Years of Prior Year FBAR?

The FBAR has a six (6) year statute of limitations. Unlike the Tax Code, the FBAR falls under Title 31 and not Title 26. Title 31 refers to AML, which is Anti-Money Laundering, and technically the FBAR has nothing to do with "tax." Since the FBAR is handled under a different section of the U.S.C., the penalty assessment and enforcement procedures will differ as well.

Generally, a U.S. person with foreign accounts will file 6-years of prior year delinquent FBAR forms. Any further back filing, and it may resurrect an already expired statute of limitations. If the six most recent years are not in compliance, it may leave the taxpayer open to significant fines and penalties as well.

What is a Reasonable Cause Statement?

The delinquent FBAR submission procedures require the taxpayer to prepare and file a Reasonable Cause Statement. Unlike the Streamlined Domestic and Streamlined Foreign Offshore procedures, the Delinquency Procedures requires the taxpayer submit a reasonable cause statement. We have represented several hundred clients with reasonable cause statement submissions and have been very effective in avoiding and eliminating penalties.

There is no “form” reasonable cause letter statement. Rather, the client must refer on the knowledge of the attorney. This is why it is crucial to retain a Board-Certified Tax Law Specialist who is dually-licensed. This helps to protect the attorney-client privilege.

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