Worried About Filing a FBAR For the First Time? Here’s What You Need to Know

Every U.S.- connected person with foreign bank accounts must file an annual Report of Foreign Bank and Financial Account (FBAR) if their foreign accounts had an aggregate balance of $10,000 or more at any point over the course of the year. FBARs are also called Form 114, and the form must be filed electronically by the filing deadline. This year, that deadline was June 30, 2016.

Many accountholders have only just discovered FBAR requirements and were unaware they had to file these forms in the past. Unfortunately, this can lead to a difficult question: Should you file the form for the first time and take the risk of the IRS looking into whether you had offshore accounts in the past that you did not declare?   Before you answer this question, you should consult with a Washington DC criminal tax lawyer to discover what your options are.

Should You File FBARs If You Haven’t In Past Years?

The penalties for a failure to file FBARs can be severe. You could potentially face criminal action, and you will face fines, which in some cases have exceeded the value of offshore accounts.  The fines differ for willful violators who knew they were supposed to file FBARs and didn’t, compared with people who made mistakes and didn’t file because they were unaware of the requirement.

Unfortunately, for non-willful violators who discover the FBAR requirement, you will have to find some way to move forward and come into tax compliance in the future. 

One of the options that you have is called a “quiet disclosure.” Essentially, this involves filling out your FBAR form going forward by the annual deadline, and then filing one or more amended tax returns for past years when you were supposed to declare foreign accounts but didn’t.

Many people have been choosing this option, and the Government Accountability Office found recently that a skyrocketing number of people ere filing first-time reports of FBARs. The GAO urged the IRS to identify taxpayers who make so-called quiet disclosures by looking at initial FBARs and then exploring why the form wasn’t filed the prior year.

GAO also recommended the IRS look at taxpayers’ Schedule B forms to see if the taxpayer has checked the box indicating he has a foreign account. If the box is checked and wasn’t in the past, the IRS can take a closer look to see if the accountholder made a quiet disclosure. 

If the IRS does begin to crack down on quiet disclosures, suddenly filing a first FBAR can trigger substantial financial consequences and possibly even criminal consequences if they discover you didn’t file forms before and were supposed to.

Before you file, you should consult with Kevin Thorn, a DC criminal tax attorney, to find out what other options you have, such as the Offshore Voluntary Disclosure Program. These options may be preferable to a quiet disclosure because they can sometimes allow you to resolve your past failures to comply with tax laws with the minimal possible financial penalties.