Common FBAR Errors
Correcting Common FBAR Errors & Amending FinCEN 114: After a US person has already filed their FBAR, they may realize that they missed some bank accounts or inaccurately reported some of the foreign financial information. Unfortunately, the IRS does not make it that simple for the FBAR filer to just go back and amend a previously filed FBAR. There are many factors to consider before amending the FBAR. Two of the most important pieces of information to keep in mind are the following:
- FBAR is not an IRS form, but rather a FinCEN Form; and
- There is a six year statute of limitations to assess penalties
Let’s go through some of the basics when it comes to amending the FBARs to correct common FBAR errors.
FBAR was Originally Filed
Since this is an article about amending FBARs, it presupposes that the filer already submitted an FBAR and that this is not the original FBAR being filed.
Late FBAR filing is different than amending the FBAR.
Missed Some Foreign Accounts (Most Common FBAR Error)
While some people will make the general statement that they missed some accounts, oftentimes a deeper dive into the situation may reveal that either they knew about the account (and didn’t report it) or that they didn’t conduct sufficient research to determine any information about the account.
Filer Simply Forgot about the Foreign Account
This is a totally common FBAR error scenario.
For example, let’s say a person has a dormant account that they have not accessed in many years. If the person forgot to report the account on the FBAR because they literally forgot that the account existed — then presumably this will not be an issue and will result in a non-willful situation that should resolve easily.
Not Consider them Reportable?
A bit more complicated (but common FBAR error) scenario is when a person knows about the account at the time of completing the FBAR, but for one reason or another did not report the account.
It may be a relatively simple situation such as the person did not presume that a foreign pension account or life insurance policy (both which are reportable on the FBAR) should have been included.
Conversely, if a person knew about the foreign account and thought it may have to be reported but did not take any further steps to determine whether or not it was a reportable foreign financial account — the waters may be a bit murkier.
A detailed evaluation of the facts and circumstances is probably necessary.
Considered Reporting the Account, But…
If a person knew the account should have been reported but simply did not report it for one reason or another, then it may not fall into the “forgotten” category. Rather if there was a conscious thought to not include it — then the facts and circumstances should be evaluated thoroughly by a specialist to determine whether or not the person meets the willful or non-willful.
Willful vs Non-Willful
When it comes to the FBAR, the most important part of any analysis is determining whether or not the person acted willful or non-willful. There is no bright-line test to determine willfulness versus non willfulness. Rather, it is based on a totality of the circumstances.
The reason why willful vs non-willful was so important is because it will impact which program the taxpayer may qualify for when they go back and amend their returns. More specifically, will they qualify for one of the non-willful submission procedures such as streamlined, reasonable cause, or delinquency procedures — or was the taxpayer willful and therefore has to submit to VDP (voluntary disclosure program).
No Unreported Income
If the taxpayer is non-willful and has no unreported income, then they may qualify for the Delinquent FBAR Submission Procedures — which usually results in a penalty waiver. There are very strict reporting requirements and eligibility under DFSP.
When a Taxpayer is non-willful and has unreported income, then they may qualify for the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures – as well as the Reasonable Cause Statement alternative
There are also very strict reporting requirements and eligibility under any of these programs.
When a Taxpayer is willful, their only option for voluntary disclosure is for the Voluntary Disclosure Program (VDP).
Amending & Correcting Common FBAR Errors
In conclusion, when a person has foreign accounts and filed an FBAR — but did not necessarily file it correctly — they may have to go back and amend the form. The level of complexity in amending the FBAR will vary depending on the facts and circumstances — with an emphasis on willful vs non-willful, as well as whether or not there was unreported income as well.
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