Internal Revenue Service procedures provide that taxpayers who do not need to use either the Offshore Voluntary Disclosure Procedures (“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 FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR),
- 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.
The IRS adds that it
will not impose a penalty for the failure to [timely] 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.
A taxpayer can avail of the delinquent FBAR submission procedures only so long as the IRS is not aware of the taxpayer’s failure to file FBARs, and has not contacted the taxpayer concerning it. Moreover, the IRS never penalizes a taxpayer for late filing of an FBAR, but only for failure to file an FBAR. Therefore, it behooves a taxpayer with one or more unfiled FBARs to voluntarily file the delinquent FBARs as soon as possible.
Finally, the IRS says that “FBARs [filed under the delinquent FBAR filing procedures] 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.” We have brought a great many taxpayers into compliance with U.S. laws concerning foreign financial accounts by means of the delinquent FBAR submission procedures. None of the taxpayers have been contacted concerning an income tax examination.