Filing FBARs Late – What US Expats Need to Know
Americans living abroad are required to file a US tax return the same as if they lived in the US, reporting their worldwide income.
Fortunately, there are several IRS exemptions such as the Foreign Earned Income Exclusion and the Foreign Tax Credit that they can claim that prevent most expats from paying US tax (although they still have to file, regardless of whether they are also filing or paying taxes abroad).
There are additional US filing requirements that affect many expats though, notably the requirement to file an FBAR (Foreign Bank Account Report).
Many US expats weren’t aware of some or all of their US filing obligations as non-residents however, so they find themselves either facing penalties or needing to catch up.
In this article we look at how US expats can catch up with late FBAR filing, including exactly who needs to file.
Who must file an FBAR?
All Americans who have a minimum total of $10,000 in foreign financial accounts at any time during the year are required to file an FBAR to report all their foreign accounts.
The $10,000 minimum amount is the aggregate total, which may be spread between multiple accounts, rather than there having to be $10,000 in any single account.
Qualifying accounts include most types of checking, savings, and investment accounts – any account held at a foreign financial institution with a cash balance.
Also, the account doesn’t have to be held in the expat’s name; any account that the expat has signatory authority over (e.g. a business account), or any measure of control over or interest in qualifies.
“The IRS will not impose a penalty for the failure to 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” – the IRS
An FBAR should be filed by the following October 15th after the relevant tax year, each qualifying year.
Do I really have to?
Around 300,000 foreign financial firms are currently providing the IRS with information about their US account holders, including balances, meaning that the IRS already knows who should be filing an FBAR. They are using increasingly sophisticated algorithms and AI to sift through this information to try and collect more taxes, as well as fines.
If the IRS believes that an expat should have filed an FBAR but hasn’t, they will write to them and at this point the expat may have to pay non-compliance fines.
Fines for FBAR non-compliance are steep, starting at $10,000 per year if the non-compliance was non-wilful, which is to say not knowing about the requirement won’t exempt expats from fines once the IRS has contacted them. (Multiple court cases have tested this). Furthermore, when the IRS’ assessment of fines, back taxes and interest owed reaches $50,000, they can revoke US citizenship.
As such, we strongly recommend that expats who should have filed FBARs but haven’t take steps to catch up at their earliest convenience, before the IRS comes to them.
How to file late FBARs
The good new is that if the IRS hasn’t already contacted you yet, it’s possible to file FBARs late without facing any penalties.
There are typically two ways to catch up with FBAR filing, depending on whether you also have late US tax returns to file.
Expats who have filed their annual US tax returns but not their FBARs, including reporting any income relating to the relevant foreign financial accounts in the tax returns that they have filed, can simply back file FBARs on the FinCEN online portal for any qualifying years, simply stating why they haven’t filed them previously (e.g. they were unaware of the requirement to do so). So long as the IRS hasn’t contacted them yet, there should be no further consequences.
Expats who also have late tax returns to file meanwhile can catch up with both their US tax filing and FBAR filing using the IRS Streamlined Procedure amnesty program.
Under this program, expats who weren’t aware of the requirement to file US taxes from abroad can catch up without facing any penalties by filing their last 3 tax returns and their last 6 FBARs (as appropriate). (Note that if you need to catch up with less than 3 years’ of tax filing, you can simply back file them, along with any FBARs due).
Expats who have already been contacted by the IRS regarding late tax return or FBAR filing meanwhile are in a slightly different predicament, and expats in this situation should contact a US tax attorney at the earliest opportunity.