Yes, You CAN Amend Your FBARs

Aug 23, 2017

Despite what you might think, you can in fact amend your FBAR forms as of the date of this post. The more important questions are should you? Or should you hire an expert to file the FBARs for you? The FBAR is an admittedly difficult form to prepare and filing can be complicated. For instance, even though you might have no tax due, the IRS may still assess a willful FBAR penalty against you - which can get hefty. The FBAR is actually not a tax form in the traditional sense. It is so complicated, the federal government put the IRS in charge of administering it because no other federal agency employees wanted to deal with it.  Unfortunately, the FBAR forms carry steep penalties for even innocent mistakes. Complexity: The FBAR is known by (at least) the following four different names. This may seem like a small issue, but it illustrates a larger problem. The IRS can't even settle on one standardized name for the FBAR. It is also known as: FinCEN Form 114; Report of Foreign Bank Accounts; and TD F 90.22-1. This leaves an uncomfortable question. If the IRS is unable to agree upon a consistent name for the FBAR form, what assurances are there that the IRS will apply the law consistently or fairly? It certainly does not instill confidence in taxpayers. There are risks associated with filing an amended FBAR form, especially if you opt to do so outside one of the penalty relief programs, discussed on the FBAR Wiz homepage. Filing an amended or delinquent FBAR outside one of the IRS's penalty relief programs does not afford any penalty protection and therefore requires careful consideration. The IRS may impose penalties if it later determines that the FBAR error was willful or due to negligence. On the other hand, no penalties may be imposed under the law if the error was due to reasonable cause (i.e., an innocent mistake). Even if the error was not due to reasonable cause, under the IRS's penalty mitigation guidelines, the IRS has discretion to determine that a penalty would be inappropriate and may instead issue an FBAR warning letter (source: Internal Revenue Manual Exhibit 4.26.16-2). In order to assess the willful FBAR penalty (up to 50% of the account value), the IRS must find a reason that you were "willful" in your actions. Unfortunately, the IRS has been known to assert arguments like: "You knew enough to amend an FBAR, but you didn't know enough to read the instructions correctly?" Then, they go one step further and say, "Since you knew about the FBAR, you must know about the Internal Revenue Manual, the Bank Secrecy Act of 1970 (as amended) and the recent FBAR litigation on what is required in federal district court." In other words, filing an amended FBAR runs the risk that the IRS will impute knowledge to you about your foreign financial assets that you might not have actually possessed - this is a prime reason to retain a CPA or attorney to assist you through the offshore disclosure process. What Happens if You Do Not Amend Your FBAR, but You Needed To? In the worst case scenario, willfully and knowingly filing a false FBAR means that the IRS can assess a large civil penalty of $100,000 or 50% of the account value (whichever is greater) in addition to $10,000 or 5 years for criminal violations. However, it is not made clear whether failure to amend is covered by this violation - though many feel that it is better to be safe and amend any mistakes on the FBAR. You should consult a CPA or attorney to help you decide. Consider An Offshore Disclosure Program Just because a foreign asset is not taxed in the country is which it is held does not mean they are tax-free or reporting free for United States tax purposes. If you have a missing FBAR and unreported income, usually some sort of voluntary disclosure program is needed to mitigate the risk of being hit with the willful FBAR penalties. If you have any doubt about the potential for criminal prosecution, you should immediately retain an attorney specializing in offshore disclosure work. Again, amending an FBAR will infer you have a higher standard of knowledge and the IRS could use this against you if you are ever audited. That might not be a risk you are comfortable with. When to Amend FBARs Filing your FBARs by the deadline is important to avoid some of the hefty penalties that may be administered by the IRS. If you've forgotten any of the following, you may have issues:

  • Signatory Authority - If you have signatory authority on an offshore account -- even if you have no financial interest -- you must declare this when you file FBARs.
  • Life Insurance/Pension - Don't forget that foreign life insurance and/or pension plans are both reportable on the FBAR.
  • Missed Accounts - Forgotten offshore accounts
  • Incorrect Balances - Make sure you've calculated your FBAR balances correctly
  • Joint Accounts - Joint accounts require filing even if another individual with ownership of the account has already submitted an FBAR. In addition, you need to make sure that you don't retain ownership of a joint account after selling it.

  The first step in this whole process is to first determine the likelihood that you have an FBAR filing obligation. Check out the free FBAR Wiz app by clicking "get started" above to quickly and easily see if you have to file an FBAR and/or Form 8938.