When is Amending FinCEN Form 114 (FBAR) Necessary?

When is Amending FinCEN Form 114 (FBAR) Necessary?

What is the Process for Amending FBAR

A common question we receive from taxpayers across the globe involves what happens when a Taxpayer may have filed a timely FBAR but did not include all of the foreign accounts on the FinCEN Form 114 (FBAR). In this type of situation, technically the Taxpayer is required to go back and amend the FBAR in order to resolve the issue — and ensure that the FinCEN Form 114 is accurate. But when the Taxpayer amends the FBAR, a key question becomes whether or not the taxpayer will be penalized for amending the FBAR. Due to the Supreme Court’s ruling in Bittner, the IRS is limited in issuing annual FBAR penalties per form and not per account Thus, whether the Taxpayer can be penalized for amending the FBAR may depend on whether or not the FBAR was substantially complete when it was originally (timely) filed — and whether the issue involves willfulness.

Bittner Limits Non-Willful FBAR Penalties

As a result of the Supreme Court’s ruling in Bittner, Taxpayers can no longer be penalized for non-willful FBAR penalties based on a per account basis. Rather, they are penalized on whether or not the form was filed. So, the question then becomes if the form was timely filed but the taxpayer simply missed an account, can the IRS still penalize the taxpayer for amending the FBAR?

FBAR and the Totality of the Circumstance Analysis

Whether or not the Taxpayer could potentially be penalized for failing to file a complete FBAR — and what is considered ‘complete’ — is yet to be determined. Presumably, it would depend on various factors, such as what type of account was missed, the value of the missed accounts relative to the total number of accounts on the FBAR — and the number of accounts that should have been included. For example, if a person filed an FBAR with 10 accounts but missed a single account that may be considered dormant or low value, presumably the IRS would have a difficult time assessing penalties if the taxpayer amended that form. Instead, let’s say that the Taxpayer missed several accounts and/or the value of those accounts was significantly high. Could the IRS now take the position that the taxpayer did not substantially comply with FBAR filing requirements because they missed multiple accounts that were high value?

Willful vs Non-Willful

Another very important issue is whether the missed account(s) was due to willfulness or non-willfulness. For example, did the Taxpayer simply forget that they had the account because it was inactive or because the Taxpayer believed that type of account may not have to be reported (such as a foreign life insurance policy or a foreign pension plan). Or, did the Taxpayer act with reckless disregard or willful blindness in failing to report one or more accounts that may have had a potentially high value or were otherwise a foreign account that the Taxpayer did not want to include on the FBAR form — even though they knew it should have been included on the form.

How will the IRS React to an Amended FBAR?

There are many issues the IRS will consider in determining whether an FBAR was considered substantially complete and if the Taxpayer acted with willfulness in failing to file a complete FBAR – to determine if the penalties may be warranted.

Current Year vs Prior Year Non-Compliance

Once a taxpayer has missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

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