As a U.S. expat, it’s essential to report your foreign income, and it’s easy to overlook the reporting obligation to file the FBAR, which is separate from your tax return. The Bank Secrecy Act (BSA) mandates the reporting of foreign bank and financial accounts to ensure compliance with U.S. regulations. A common and crucial question is, “How far back do I need to file an FBAR?” The answer is six years, which is vital for maintaining compliance and avoiding FBAR penalties.
What is FBAR?
The FBAR refers to FinCEN Form 114, a requirement for U.S. persons to file if they have a financial interest in or signature authority over a foreign financial account, including bank accounts, mutual funds, or brokerage accounts, and the aggregate value of these accounts exceeds $10,000 at any point during the calendar year.
The Statute of Limitations for FBAR
The statute of limitation for the FBAR is six years, as established by 31 U.S.C. § 5321(b). This timeframe is when the IRS can enforce penalties for non-compliance with FBAR regulations. Civil penalties for FBAR non-compliance can be severe, including both non-willful and willful violations, with significant financial consequences. The focus here is on the disclosure of foreign accounts and assets, which includes investment accounts and other financial assets, rather than the reporting of income on a federal income tax return. It’s crucial for individuals with foreign financial interests to file accurate FBARs for the past six years to remain compliant with civil FBAR penalties.
What Does This Mean for You?
If you’re a U.S. expat and haven’t filed your FBARs, the IRS can assess penalties for each year you failed to file when required within the past six years. Potential FBAR penalties for non-compliance can include both civil and criminal enforcement actions.
If you realize your mistake and file your delinquent FBARs before the IRS reaches out to you, they are generally understanding. They tend to not penalize people who didn’t know about the filing requirement and come forward on their own. This includes reporting any foreign account that meets the criteria.
At 1040 Abroad, we’ve seen this firsthand – none of our clients who’ve filed late FBARs have been fined when they’ve come to us for help.
Examples for Clarity
Example 1: John realized in 2023 that he had not reported his foreign bank account in a foreign country for the past eight years. Under the statute of limitations, the IRS can assess civil penalties for the years 2017 through 2022.
Example 2: Sarah filed her FBARs each year but forgot to include one of her accounts. The IRS can assess non-willful penalties for the non-reported account for each year it was omitted in the past six years.
Exceptions to FBAR Penalties
The statute of limitations may be extended in certain circ*mstances, such as if you become the subject of an audit, if there’s a suspicion of money laundering, or if there’s evidence of willful non-compliance, which could lead to criminal penalties.
What Should You Do?
If you’ve discovered that you’ve failed to file an FBAR in the past, it’s important to take action immediately. Reporting foreign financial assets is crucial to avoid severe penalties. The IRS offers programs like the Streamlined Filing Compliance Procedures (if you failed to file your Federal Tax Returns too) or the Delinquent FBAR Submission Program. Consulting with a tax professional is crucial to understanding your options and the best course of action, especially if you’re dealing with late FBARs or need to meet the filing deadline (US expats get an automatic 6-month extension).
As you navigate the complexities of filing your FBARs, remember that staying informed and proactive about your filing obligations is key to managing your financial assets abroad. Whether it’s a foreign pension, foreign assets or other foreign accounts, understanding the requirements can save you from hefty penalties. The maximum penalty for willful failure to file an FBAR can be severe, so it’s crucial to take action if you have delinquent filings to avoid significant tax liability.
At 1040 Abroad, we’re dedicated to helping U.S. expats like you become compliant with your FBAR filings and avoid unnecessary financial penalties. We offer free tax advice via email and are more than happy to assist with any questions you may have regarding your Foreign Bank Account Report or other filing obligations. Don’t hesitate to reach out to us; our team is here to provide the support and guidance you need to ensure your financial peace of mind.
