The Internal Revenue Service (IRS) expected taxpayers to file a Report of Foreign Bank and Financial Accounts (FBAR) by April 15, 2022. However, those who did not meet this deadline may have a get out of jail free card as the IRS provided an automatic extension to file until October 15, 2022.
Do I need to file an FBAR?
If you had an account in a foreign country, you may. The law requires a U.S. person who had a financial interest or signature authority in an account in a foreign country with an aggregate value of more than $10,000 at any time during the tax year file an FBAR. According to the law, a U.S. person is a resident or citizen of the United States. It also extends to include legal entities like a partnership, corporation, limited liability company, estate, or trust. The IRS considers an “account” as a bank account, mutual fund, brokerage account, or other financial account.
Wait, a get out of jail free card? Is prison really a possibility?
In short yes, the IRS could move forward with criminal penalties including prison time for those who do not report these assets.
In a recent example, the IRS moved forward with criminal charges against a university professor. The agency claimed that the professor intentionally failed to report over $100,000 in assets in multiple accounts in China. Upon review of the evidence the court agreed with the IRS and convicted the professor of three counts of making false or fraudulent statements to the IRS on his tax returns as well as a failure to file an FBAR. He faces up to three years imprisonment for each false tax form conviction and an additional five years for the failure to file FBAR conviction. Sentencing is scheduled for later this summer.
What should I do if I forgot to file an FBAR?
There are two routes. The first, and less desirable, unfolds when the IRS has discovered the failure and is moving forward with criminal charges. It is important to take the allegations seriously. There are some potential defenses, which can include reasonable cause for the failure to file.
In the second, you choose to proactively report these assets. The IRS states that it will not penalize those who report a foreign account on a late-filed FBAR. As such, proactive reporting is generally recommended.
Navigating this issue and the best way to report or build a defense is complicated. The attorneys at Goldburd McCone are familiar with these matters and can guide you through either process.