U.S. persons who have a financial interest in or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year are required to file an FBAR (FinCEN Form 114) annually with the Financial Crimes Enforcement Network. The FBAR is filed separately from a tax return and is one of the most commonly misunderstood international reporting obligations. Failure to file can carry severe consequences — civil penalties for non-willful violations can reach up to $10,000 per unreported account, while willful violations can result in penalties equal to the greater of $100,000 or 50% of the account balance per year, along with potential criminal prosecution. With the implementation of FATCA, which requires foreign financial institutions worldwide to automatically report U.S. account holder information to the IRS, the risk of the government identifying undisclosed accounts has increased dramatically.
For taxpayers who have not previously filed an FBAR but who properly reported all foreign account income on their U.S. tax returns, the IRS offers the Delinquent FBAR Submission Procedure (DFSP) as a path to compliance. Under this procedure, the IRS will not impose a penalty for the failure to file delinquent FBARs provided that the taxpayer properly reported and paid all tax on income from the foreign accounts and has not previously been contacted by the IRS regarding an examination or a request for delinquent returns. The taxpayer must e-file the delinquent FBARs and include a persuasive statement explaining why the filings are late. While the DFSP carries no penalty for eligible taxpayers, it has complex and rigid eligibility requirements — and filing a delinquent FBAR outside of a formal penalty relief program provides no penalty protection and requires very careful consideration. Depending on the circumstances, other compliance options such as the Streamlined Domestic Offshore Procedures (SDOP), Streamlined Foreign Offshore Procedures (SFOP), or the Voluntary Disclosure Practice (VDP) may be more appropriate.
Patel Law Offices has successfully filed hundreds of DFSP filings and has counseled over 1,000 clients in voluntary disclosure matters involving foreign accounts and assets. Led by Mr. Patel — a Board Certified Tax Law Attorney and graduate of Georgetown (J.D.) and New York University (LL.M. in Tax) — our legal team mitigates foreign account FBAR mistakes for clients around the globe. We carefully analyze each client’s facts and circumstances to determine whether the DFSP, the Streamlined procedures, or another compliance pathway offers the best outcome. If you have unfiled or late FBARs and need experienced legal guidance to come into compliance, contact Patel Law Offices to schedule a strategy session.