For immediate help with an FBAR issue visit www.irsmedic.com/offshore

Here are some things you really should know before you decide NOT to file an FBAR.

The FBAR is the Report of Foreign Bank Accounts. FBAR is also known as FinCEN Form 114. A person or entity is required to file an FBAR if they have a financial interest in or signature authority over at least one type of foreign financial account that exceeds an aggregate value of $10,000 at any time during the year. FBAR reporting is not limited to foreign bank accounts. Pensions, life insurance policies, and accounts that earn no money have to be reported.

The FBAR form is a complicated form and is viewed by some as an invasion of privacy. Some clients ask whether they can get away with not filing an FBAR form. I advise those clients that FBAR penalties are steep and willful non-compliance is illegal. Therefore, to avoid legal consequences, I advise filing an FBAR form.

There are six things to be aware of before not filing an FBAR.

If you ever filed an FBAR, you are now in the FinCEN database. Once you are in a database, you can be tracked.

People who don’t comply with the reporting obligation and don’t risk consequences are people who don’t get caught. The IRS only needs to catch you once. IRS tax examiners will ask a person about FBARs. If a person doesn’t answer honestly, he will face civil and criminal penalties. However, answering honestly will have consequences too. Failing to learn about foreign account reporting requirements can be evidence of “willful blindness.” See Internal Revenue Manual, 4.26.16.4.5.3, Paragraph 6.

The DOJ also investigates people for criminal charges related to FBAR non-compliance. Criminal penalties for FBAR violations are frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law the penalties are increased to $500,000 in fines and/or 10 years of imprisonment.

People who have grievances against you are often very willing to offer testimony to the government. If you are not going to file an FBAR form, be confident that the people aware of your reporting obligation won’t offer testimony to the government.

Income and assets can be attached to pay outstanding FBAR penalties. If you have no income or assets that can be attached, you may be able to avoid collection. However, in some jurisdictions, the IRS may be able to seize part of your spouse’s assets to pay your bill.  

The statute of limitations for FBAR penalties is 6 years. However, after six years, the IRS may still be able to penalize you for other unfiled foreign reporting forms like Form 5471 or Form 8938. These penalties can be assessed for multiple years, and unlike FBARs, there is no statute of limitations on these types of penalties.

A person’s best option is to file an FBAR correctly and get into a proper offshore disclosure plan. However, there are three things to consider that may take the sting away from this compliance regime:  

The FBAR intel is low value to the government. By filing an FBAR, you’re merely bogging down government bureaucracy.

There is no such thing as an FBAR initiated audit. No one looks at an FBAR unless a tax audit is initiated. Don’t think that filing an FBAR is a red flag to get you audited.

If you are going to “come clean” with the IRS do it right or don’t do it at all. Lying to the IRS will make things worse.

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