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Report of Foreign Bank and Financial Accounts (FBAR).

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.
Current FBAR Guidance FinCEN introduces new forms

On September 30, 2013, FinCEN posted, on their internet site, a notice announcing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (the current FBAR form). FinCEN Form 114 supersedes TD F 90-22.1 (the FBAR form that was used in prior years) and is only available online through the BSA E-Filing System website.

The system allows the filer to enter the calendar year reported, including past years, on the online FinCEN Form 114. It also offers an option to “explain a late filing,” or to select “Other” to enter up to 750-characters within a text box where the filer can provide a further explanation of the late filing or indicate whether the filing is made in conjunction with an IRS compliance program.

On July 29, 2013, FinCEN posted a notice on their internet site that introduced a new form to filers who submit FBARs jointly with spouses or who wish to have a third party preparer file their FBARs on their behalf.

The new FinCEN Form 114a, Record of Authorization to Electronically File FBARs, is not submitted with the filing but, instead, is maintained with the FBAR records by the filer and the account owner, and made available to FinCEN or IRS on request.

The IRS is aware that some taxpayers who are dual citizens of the United States and a foreign country may have failed to timely file United States federal income tax returns or Reports of Foreign Bank and Financial Accounts  despite being required to do so.

Some of those taxpayers through the media and other sources are now aware of their filing obligations and seek to come into full compliance with the law.

This fact sheet summarizes information about federal income tax return and FBAR filing requirements, how to file a federal income tax return or FBAR, and potential penalties.Financial Accounts.

Penalty Note

Note that penalties will not be imposed in all cases.

As discussed in more detail below, taxpayers who owe no U.S. tax (e.g., due to the application of the foreign earned income exclusion or foreign tax credits) will owe no failure to file or failure to pay penalties.

In addition, no FBAR penalty applies in the case of a violation that the IRS determines was due to reasonable cause. This is big news!

This fact sheet is provided for information purposes only, and the topics discussed may or may not apply to a particular taxpayer’s situation.

The IRS continues to consider the topics discussed in this fact sheet and will provide additional information as it becomes available.

• 1. U.S. income tax return filing requirement

As a United States citizen, you must file a federal income tax return for any tax year in which your gross income is equal to or greater than the applicable exemption amount and standard deduction.

You are required to report your worldwide income on your federal income tax return.

This means that you should report all income, regardless of which country is the source of the income. Generally, you only need to file returns going back six years.

• 2. Penalties imposed for failure to file income tax returns or to pay tax

If you are required to file a federal income tax return and fail to do so, or you fail to pay the amount of tax shown on your federal income tax return, you may be subject to a penalty under Internal Revenue Code (IRC) section 6651, unless you show that the failure is due to reasonable cause and not due to willful neglect.

The penalty is 5 percent of the amount of tax required to be shown on the return. If the failure continues for more than one month, an additional 5 percent penalty may be imposed for each month or fraction thereof during which the failure continues.

The total failure to file penalty cannot exceed 25 percent.

Note that there is no penalty if no tax is due.

If you fail to pay the amount of tax shown on your federal income tax return, you may be subject to a penalty for failing to pay under IRC section 6651(a)(2), unless you show that the failure is due to reasonable cause and not due to willful neglect.

The tax penalty begins running on the due date of the return (determined without regard to any extension of time for filing the return) and is 1/2 percent of the amount of tax shown on the return.

If the failure continues for more than one month, an additional 1/2 percent penalty may be imposed for each additional month or fraction thereof that the amount remains unpaid. The total failure to pay penalty cannot exceed 25 percent.

Note that there is no penalty if no tax is due.

Under IRC section 6651(c)(1), the failure to file penalty is reduced by the amount of the failure to pay penalty for any month in which both apply.

Whether a failure to file or failure to pay is due to reasonable cause is based on a consideration of the facts and circumstances.

Reasonable cause relief is generally granted by the IRS when you demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but nevertheless failed to meet them.

In determining whether you exercised ordinary business care and prudence, the IRS will consider all available information, including:

1. The reasons given for not meeting your tax obligations;
2. Your compliance history;
3. The length of time between your failure to meet your tax obligations and your subsequent compliance; and
4. Circumstances beyond your control.

Reasonable Cause

Reasonable cause may be established if you show that you were not aware of specific obligations to file returns or pay taxes, depending on the facts and circumstances.

Among the facts and circumstances that will be considered are:

a. Your education;
b. Whether you have previously been subject to the tax;
c. Whether you have been penalized before;
d. Whether there were recent changes in the tax forms or law that you could not reasonably be expected to know; and
e.The level of complexity of a tax or compliance issue.

You may have reasonable cause for noncompliance due to ignorance of the law if a reasonable and good faith effort was made to comply with the law or you were unaware of the requirement and could not reasonably be expected to know of the requirement.

• 3. Possible additional penalties that may apply in particular cases

In addition to the failure to file and failure to pay penalties, in some situations, you could be subject to other civil penalties, including the accuracy-related penalty, fraud penalty, and certain information reporting penalties.

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