IRS Provides Tips for FBAR Compliance in 2021
U.S. taxpayers with qualifying foreign financial accounts must complete and file a Report of Foreign Bank and Financial Accounts (FBAR) annually. Failure to do so can lead to civil or criminal penalties, and it can lead to scrutiny of taxpayers’ other filings as well. The Internal Revenue Service recently published some tips for FBAR compliance in 2021, which Washington D.C. international tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses below:
Determine if You Have One or More “Foreign” Financial Accounts
The obligation to file an FBAR doesn’t just apply with respect to financial accounts held in other countries. As the IRS explains in its updated guidance issued in April 2021, the FBAR filing requirement applies to accounts held in “any area outside the United States, Indian lands (as defined in the Indian Gaming Regulatory Act) and . . . U.S. territories and possessions.” This includes:
- American Samoa
- Northern Mariana Islands
- Puerto Rico
- Trust Territories of the Pacific Islands
- U.S. Virgin Islands
- Washington D.C.
Make Sure You File By October 15
While the deadline to file an FBAR is technically April 15, all taxpayers receive an automatic extension to October 15. This means that you still have time to file if you owe reporting obligations related to one or more foreign financial accounts you held in 2020.
Carefully Correct Any Past FBAR Filing Errors
If you failed to file an FBAR in 2020 (or in any prior year), you will need to carefully correct your mistake. While the IRS recommends that U.S. taxpayers file late FBARs “as soon as possible,” making a voluntary disclosure will prove to be a better option in some cases. If you need to amend a past FBAR, the standard method of doing so is by filing a new FBAR and marking it as “Amended.” However, depending on the circumstances involved, a voluntary disclosure may be a better option in this scenario as well.
Keep All Relevant Records
U.S. taxpayers who file FBARs must keep all associated account records for five years from the FBAR date in most cases. As listed by the IRS, this includes:
- The name(s) on each account
- Account number(s) or other designation(s)
- The name and address of the foreign bank or other person that keeps each account
- The type of account
- The greatest value of each account during the reporting period
File IRS Form 8938 In Addition to Your FBAR if Necessary
In addition to filing an FBAR, many U.S. taxpayers will also need to file IRS Form 8938. While taxpayers must file their FBARs with the Financial Crimes Enforcement Network (FinCEN) by October 15, they must file IRS Form 8938 with their annual return on April 15. Similar to failing to file an FBAR, failing to file IRS Form 8938 can have a range of potential consequences, and correcting a filing error will involve making a voluntary disclosure in many cases.
Contact Washington D.C. International Tax Lawyer Kevin E. Thorn
If you need more information about FBAR compliance, contact us to schedule an appointment with Washington D.C. international tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group. Call 202-349-4033, email email@example.com or tell us how we can reach you online now.