From the Tax Law Offices of David W. Klasing - What If You Didn't File Required IRS FBARs?

IRVINE, Calif., Jan. 10, 2025 /PRNewswire/ -- Maintaining foreign or international financial accounts can significantly complicate your U.S. tax obligations. Beyond submitting a meticulously accurate federal tax return each year, U.S. persons (USPs) holding over $10,000 across foreign accounts at any point in the calendar year must file a Foreign Bank and Financial Accounts Report (FBAR)—officially known as FinCEN Form 114. Unfortunately, many individuals tend not to be risk-averse when it comes to offshore reporting, either overlooking this requirement or choosing to ignore it, which can be downright frightening once you realize how swiftly an oversight can escalate a routine civil tax audit into exponentially more intense criminal tax investigation efforts by the IRS criminal tax division.

FBAR Basics: Why It Matters More Than Ever
The FBAR is an annual disclosure of overseas financial holdings mandated under the Bank Secrecy Act (BSA). It aims to prevent money laundering, terrorist financing, and tax evasion by requiring a clear line of sight into U.S.-linked foreign accounts. Even if having offshore assets is legitimate, any failure to file the FBAR (or providing inaccurate information) can land you in hot water with the IRS Criminal Investigation Division (CID)—a unit renowned for its 90% conviction rate in cases they opt to investigate.

You must file an FBAR if:

1. You qualify as a "U.S. person"—which includes citizens, resident aliens, and domestic entities (corporations, LLCs, partnerships, trusts, and estates).
2. You have a financial interest in or signature authority over foreign accounts.
3. The aggregate value of those foreign accounts exceeds $10,000 at any time during the year.

Examples of foreign financial accounts include bank accounts, brokerage accounts, commodity futures/options, and certain insurance or annuity policies with cash value. Even foreign pension plans and mutual funds may qualify as "reportable." In contrast, foreign hedge funds, private equity funds, and purely virtual currency holdings are not universally reportable under current FBAR regulations—though FinCEN has indicated that such rules may evolve.

2024 Updates: CTA, Bittner, and the Removal of Mitigation Guidelines
Corporate Transparency Act (CTA): Effective in 2024, the CTA requires certain U.S. businesses to disclose beneficial ownership information to FinCEN. The data compiled creates a national registry aimed at fighting financial crimes. This act underscores the global clampdown on undisclosed assets and intensifies the environment in which FBAR compliance is enforced.

Supreme Court's Bittner Decision: Non-willful FBAR penalties were traditionally assessed per account, potentially leading to staggering fines if you had multiple unreported accounts. Under Bittner, penalties are now imposed per report, capping fines at $10,000 for non-willful breaches on a single FBAR submission. While this ruling provides meaningful relief for taxpayers with numerous accounts who can show non-willful conduct, it does not shield willful violators from far more severe sanctions.

Removal of Non-Willful Mitigation: The IRS previously employed formal mitigation guidelines allowing examiners to reduce penalties for non-willful violations based on cooperation or account size. With those guidelines lifted, examiners enjoy broad discretion—escalating risk for taxpayers who fail to file FBARs or who underreport foreign income. Complete and accurate reporting is now vital to avoid potentially extreme consequences.

Consequences of Failing to File FBARs
Ignoring FBAR obligations can trigger substantial civil and criminal tax penalties. In non-willful scenarios, fines may reach up to $10,000 per violation. In willful cases, penalties can climb to the greater of $100,000 or 50% of the account balance, per account, per year. A willful FBAR violation can also yield severe criminal tax charges, including fines of up to $250,000 (or $500,000 for entities) and up to five years in federal prison. Even an innocent-sounding slip can transform into a high-risk eggshell or reverse eggshell audit, spiraling into a criminal tax investigation if the IRS detects "firm indications of fraud."

FBAR Filing Deadlines, Process, and Key Exceptions
For 2024, FBARs (FinCEN Form 114) must be e-filed by April 15, 2025, with an automatic extension to October 15, 2025, if you miss the initial date. Filing is accomplished electronically via FinCEN's BSA E-Filing System—no paper versions are typically accepted. Note that certain circumstances, such as a natural disaster, may permit additional relief. If you also have to file Form 8938 (Statement of Specified Foreign Financial Assets) with the IRS, remember these are separate requirements.

Some accounts might be exempt, such as those on U.S. military banking facilities or foreign accounts owned by certain government entities, but these exceptions are narrow. If two or more individuals hold a joint foreign account, each U.S. person with a financial interest must file an FBAR, reporting the full value of the account. There is a specific spousal exception for jointly owned accounts if one spouse files a timely FBAR and both complete Form 114a.

Options If You Have Failed to File FBAR
Delinquent FBAR Filings: If you have no unreported income and are not under an IRS audit or criminal tax investigation, you may submit delinquent FBARs (FinCEN Form 114) along with a brief explanation for the late filing. The IRS may waive penalties if all required income was correctly reported on prior returns and you have never been contacted about the delinquency.

Streamlined Filing Compliance Procedures: For non-willful tax oversights, streamlined filing can reduce or even eliminate tax penalties. You must provide up to three years of amended tax returns (if relevant), six years of FBARs, and a signed certification of non-willfulness under penalties of perjury. While this option often mitigates civil tax penalties and curtails criminal tax exposure, any deceptive statement about willfulness can constitute a separate, serious felony. Therefore, it's a delicate path best navigated with experienced dual-licensed FBRA tax attorneys and CPAs to ensure all statements are truthful and accurately reflect your intentions.

Voluntary Disclosure Practice (VDP): Whether you fear consequences due to past filing failures (undisclosed Foreign Accounts) or have already been contacted by the IRS, the experienced, dual-licensed international tax attorneys and CPAs at the Tax Law Offices of David W. Klasing can fight for you. Our dual-licensed FBAR Tax attorneys and CPAs are dedicated to mitigating the consequences faced by taxpayers who have failed to maintain international account compliance. However, time is often of the essence when filing FBAR and addressing offshore tax situations.

Taxpayers who come under investigation before making a disclosure may also be ineligible for programs like Offshore Voluntary Disclosure Practice or Streamlined Disclosure. We skillfully navigate the complexities of various federal and California state voluntary disclosures, including domestic, offshore, CDTFA, and FTB voluntary disclosures, streamlined procedures, and delinquent FBAR and international information return submission procedures.  To schedule a reduced-rate offshore tax consultation, call the Tax Law Offices of David W. Klasing at 888-564-1409 or contact us online here.

Contact the Tax Law Offices of David W. Klasing Today if You Didn't File Required IRS FBARs
At the tax law offices of David W. Klasing, our dual-licensed international tax attorneys and CPAs provide a one-stop shop for clients who need to correct FBAR issues, whether through streamlined filing, a voluntary disclosure, or delinquent submissions. We skillfully navigate complexities under both federal and California tax frameworks, including domestic, offshore, and FTB voluntary disclosures, ensuring that you meet BSA and IRS requirements efficiently while mitigating any potential penalties.

By intervening early, we can often prevent an ordinary civil tax audit from turning criminal—or secure a manageable resolution, leveraging personal factors such as health issues or other sympathetic elements if they apply. In an era of heightened cross-border transparency and robust enforcement, failing to comply can lead to crippling civil and criminal tax penalties, ruined reputations, and life-altering criminal tax prosecution. If you have not yet filed required IRS FBARs, the safest course is to address it promptly—either via delinquent filing, streamlined procedures, or a formal voluntary disclosure if you suspect willful wrongdoing. Waiting only increases the odds that the IRS, armed with FATCA data and advanced analytics, will zero in on your foreign accounts.

At the tax law offices of David W. Klasing, our battle-tested, dual-licensed Tax Attorneys and CPAs have decades of experience handling overseas tax evasion investigations, voluntary disclosures, and civil tax audits that risk veering into criminal territory. We also offer flexible scheduling options. Call us at (888) 904-4096 or contact us online to set up a reduced-rate initial consultation. The earlier you act, the better your chance of avoiding the catastrophic civil and criminal tax penalties that can stem from unfiled FBARs. Don't let an avoidable oversight destroy your peace of mind—reach out now and let our elite team guide you safely back into tax compliance.

See our FBAR Compliance and Disclosure Q and A Library 

See our Foreign Audit Q and A Library

Public Contact: Dave Klasing Esq. M.S.-Tax CPA, [email protected]

SOURCE Tax Law Offices of David W. Klasing, PC