If you’re a US citizen with overseas bank accounts, the IRS requires you to file FBAR every year. It is essential that your taxes are filed and accounts disclosed within the required time-frame to avoid severe consequences for non-compliance in the form of actual jail time and fines.
The Foreign Bank Accounts Report, commonly referred to as FBAR, is a report which is required for taxpayers from the in the US with at least $10,000 worth in financial assets in a single or various financial institutions. This is usually referred to as the informational report because it does not require the filing of tax but informing the IRS of the existence of the accounts.
In case the aggregate amount of the non-US accounts exceeded or met the $10k mark at one point during the year, then a person will be required to file it. The filing is usually done in April in the year after the time the accounts were held. This implies that if your account qualified in 2018, you’ll be required to file in 2019.
What You Should Know About the FBAR Penalties
Here are some of the essential aspects you need to remember about the FBAR penalty.
Penalty assessment is not Automatic for Late or Misfile
In case of a late or a misfile, penalty assessment is not automatic. The IRS examiner that will review your case can utilize their discretion on whether to assess a penalty or not. They take various circumstances into consideration before they can decide if a penalty is warranted. You need to remember that FBAR penalties are put in place to ensure compliance. If the examiner believes a warning letter may be the right approach, then Letter 3800 will be given to the delinquent individual.
Ugly v. Disastrous Penalty
The two kinds of FBAR penalties are ugly and disastrous penalties. The former is usually $10k. This penalty is assessed if an individual made an honest error. While that is the determined penalty, nothing can prevent the IRS from assessing such honest mistakes multiple times. So, you may have made a completely innocent mistake, but you may end up paying a penalty of $50k if such assessments were made five times.
The disastrous penalty, on the other hand, is 50 percent of your account value. This is assessed if the IRS has a reason to believe that you knew of the error committed. Like the ugly penalty, this one as well can be evaluated several times, implying that your entire net worth could be wiped out after FBAR penalty assessment.
You can Hire Professionals to Avoid Penalties
You need not worry if you are unable to comprehend everything about FBAR and penalties applicable. If you are not sure of what to do, you can always hire professionals such as Travis Watkins for assistance. Experienced professionals can help you with information reporting to avoid penalties that could be detrimental to your business.
When it comes to FBAR penalties, it is crucial to have the necessary information so you can be sure you are filing your IRS reports on time. If you are always engaged in your business, you can find experienced accounting professionals to help you with the reports and avoid penalties.