An Update on Foreign Financial Account Reporting

By Susanne Holloway, CPA, MBA, and Michael A. Schuldt, CPA, J.D., Ph.D.



  • The IRS is emphasizing compliance with foreign account reporting requirements, raising the risk level for taxpayers that do not properly report their foreign accounts and those taxpayers' advisers.
  • U.S. residents or citizens must report a financial interest in, or signature or other authority over, specified bank and other accounts in a foreign country on Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if their aggregate maximum values exceed $10,000 at any time during a calendar year.
  • Form 8938, Statement of Specified Foreign Financial Assets, has a higher reporting threshold than an FBAR. The Form 8938 threshold is met by accounts with an aggregate maximum value of $50,000 on the last day of the tax year for single taxpayers and still higher for married taxpayers filing jointly and those living abroad.
  • FBAR reporting applies to U.S. persons, as defined by regulations under Title 31, which can include certain corporations, partnerships, trusts, estates, and other entities. While this is a broader requirement than for individuals required to file Form 8938, the latter has been extended in recent regulations to include certain specified domestic entities.
  • Persons who nonwillfully fail to file a required FBAR can incur a civil penalty of up to $10,000 for each violation. A willful violation increases the potential penalty to the greater of $100,000 or 50% of the foreign financial account balance and may also carry criminal penalties. Courts have defined willfulness for these purposes as "reckless conduct" or "willful blindness" to the requirements.
  • Best practices for practitioners include clearly and specifically discussing the foreign account and asset reporting requirements in engagement letters and using a separate engagement letter for FBAR filings. Tax organizers should include examples of reportable foreign accounts, particularly types that clients might overlook.

Foreign financial account reporting remains a significant area of concern for practitioners. The IRS has yet again listed tax avoidance by hiding money or assets in unreported offshore accounts as one of its "Dirty Dozen" tax scams for the 2016 filing season.1 The Service considers offshore tax filings a top priority area to which it has directed considerable resources to its compliance enforcement efforts. These efforts appear to have succeeded. The primary reporting form for foreign financial accounts is the Treasury Department's Financial Crimes Enforcement Network (FinCEN) Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR). FinCEN reported receiving a record-high 1,163,229 FBARs in 2015, an increase of 8% from 2014.2 In addition, the Service has increased awareness of foreign account reporting by requiring applicable taxpayers to file Form 8938, Statement of Specified Foreign Financial Assets. More than 300,000 Forms 8938 were filed with tax returns for tax year 2014.3

The risk of the IRS's discovering unreported foreign accounts has increased dramatically, as has the risk of civil and potential criminal penalties. Although tax practitioners are often their clients' trusted financial confidants and advisers, clients often have a peculiar reluctance to share foreign account information with them. Thus, for practitioners, the reporting areas involving foreign financial accounts can be particularly challenging.

Tax practitioners who have clients with offshore activities are familiar with the Form 8938 and FBAR reporting requirements, as well as myriad other potentially applicable international tax forms.4 Many other tax practitioners are also now aware of Form 8938, as it has been a tax return attachment requirement, where applicable, since tax year 2011. However, the foreign account reporting requirements reach far beyond individuals and entities that are visibly active internationally and can snare individuals who have only a tangential or indirect interest in a foreign financial account.

Even practitioners who have only a handful of clients with limited offshore activities or foreign accounts need to be attuned to the reporting requirements for foreign assets and accounts. Familiarity with the FBAR is particularly important, as tax practitioners may not be preparing and filing an FBAR for their clients but may have an obligation to advise a client that an FBAR filing is or may be required, and an FBAR filing obligation may be clearly apparent if the practitioner is preparing Form 8938. Further, the filing thresholds for an FBAR are considerably lower than for a Form 8938, and the failure-to-file penalties can dwarf tax obligations arising from income not reported on foreign bank accounts.

The discussion below comprehensively revisits the reporting requirements for an FBAR and highlights FBAR reporting requirements that differ from those of Form 8938. In addition, the discussion reviews several recent judicial decisions that interpret the FBAR penalty provisions and sets forth some recommended best practices involving these reporting obligations.

FBAR Background

While Form 8938 arose out of the Foreign Account Tax Compliance Act (FATCA)5 as a result of congressional concerns regarding international tax noncompliance, the FBAR reporting requirements arose from the Bank Secrecy Act of 1970 (BSA).6 The BSA attempted to address broader congressional concerns regarding offshore banking, with its stated purpose "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism."7 The preamble to the Treasury regulations promulgated under FATCA noted that different policy considerations apply to Form 8938 and an FBAR. Although some information required by the forms may be duplicative, in many cases, different categories of persons are required to file the forms, different thresholds apply, and different assets and information are required to be reported on each form.8

The foreign bank account reporting requirement originates in 31 U.S.C. Section 5314, which requires that U.S. residents or citizens keep records and file reports when the resident or citizen "makes a transaction or maintains a relation for any person with a foreign financial agency." The reporting form is an FBAR, which is filed electronically with FinCEN. The specific requirement for filing an FBAR is found in 31 C.F.R. Section 1010.350:

Each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314 to be filed by such persons.

However, U.S. persons described in 31 C.F.R. Section 1010.350 only must report foreign financial accounts if their aggregate maximum values exceed $10,000 at any time during the calendar year.9 This filing threshold is considerably lower than for Form 8938, which for single individuals (and, after Dec. 31, 2015, for certain domestic entities) starts at $50,00010 on the last day of the tax year, and can be as high as $600,000 for married individuals living abroad.11 However, similar to Form 8938, the FBAR's $10,000 threshold is an aggregate maximum value determination; it is not on an individual account-by-account basis. Thus, an individual could have multiple foreign bank accounts, securities accounts, or retirement accounts, each of which is under the $10,000 threshold, but if they total more than $10,000 at any time during the calendar year, they all must be reported on an FBAR.

The FBAR instructions12 give detailed guidance for computing the aggregate maximum values. The maximum value of each separate account (determined in the local currency) must be determined; the "maximum value" is a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the year.13 An account holder can rely on periodic account statements, provided they fairly reflect the maximum account value during the year.14 Local currency must be converted to U.S. dollars using the applicable Treasury Financial Management Service rate applicable for the last day of the calendar year. (If that rate is not available, the instructions permit the use of another verifiable exchange rate, so long as the source of the rate is provided.)15 If the aggregate maximum values for all accounts exceed $10,000, an FBAR must be filed.16

Unlike Form 8938, which is filed with the tax return, an FBAR is filed electronically through the BSA E-Filing System. For reporting years before 2016, it must have been received by June 30 of the year immediately following the calendar year being reported (no provision was made for extensions).17 However, for tax years beginning after Dec. 31, 2015, the due date of an FBAR is April 15 of the following year, with a maximum six-month extension allowed.18

The following definitions are crucial to understanding the FBAR filing requirements.

Who Is a United States Person?

A United States person is a citizen of the United States; a resident of the United States; or an entity created under the laws of the United States, its states, its territories and possessions, the District of Columbia, or the Indian Tribes.19 Residency is determined by applying the residency tests in Sec. 7701(b), and for definitional purposes, the United States includes its states, territories, and possessions; the District of Columbia; and the Indian lands.20 The IRS FBAR Reference Guide specifically notes that tax treaties between the United States and foreign countries do not affect residents' FBAR filing obligations.21

The FBAR rules define "persons" required to report more broadly than do the Form 8938 requirements. Form 8938 filing requirements apply to individuals and, as noted above, for tax years after 2015, certain specified domestic entities,22 but the FBAR requirements apply to individuals, corporations, partnerships, trusts, estates, and limited liability companies, as well as entities disregarded for tax purposes.23 The regulations under Sec. 6038D require that a specified person look through a disregarded entity for reporting foreign assets on Form 8938; however, the FBAR requirements impose a separate, independent reporting obligation on such entities.

What Is a Bank, Securities, or Other Financial Account in a Foreign Country?

The regulation in 31 C.F.R. Section 1010.350(c)(1) defines a bank account as "a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking." A securities account is an account with a person in the business of buying, selling, holding, or trading stocks or securities.24 An "other financial account" includes an insurance or annuity policy with a cash value, an account with a broker or dealer for futures or options transactions in commodities, an account with a mutual fund or similar pooled fund, and most significantly, "an account with a person that is in the business of accepting deposits as a financial agency."25 This catch-all definition is very broad and can include many accounts not traditionally considered financial accounts. For example, other financial accounts include many foreign retirement accounts.26 One district court decision held that foreign online gambling accounts were other financial accounts for purposes of FBAR reporting requirements. On appeal, the gambling accounts were held not to be subject to FBAR reporting, but a nongambling account the plaintiff used to transfer funds to and from the gambling websites was held subject to it.27 Although bitcoin is currently not reportable on an FBAR, there is speculation that it may be reportable in the future.28

Foreign countries include all geographical areas outside the United States.29

It is important to note one critical difference between Form 8938 reporting and FBAR. Form 8938 does not require reporting of financial accounts held in foreign branches or held in foreign affiliates of a U.S.-based financial institution. However, such accounts are considered financial accounts for purposes of FBAR reporting, as they are located in a foreign country.

There are some limited exceptions from FBAR reporting for certain accounts, generally government accounts, international financial institutions accounts of which the United States is a member, U.S. military banking facility accounts, and bank correspondent accounts.30

What Is a Financial Interest in, or Signature or Other Authority Over, a Financial Account?

The FBAR regulations regarding financial interests in, and signature authority over, foreign financial accounts are far broader than the comparable Form 8938 requirements. If a U.S. person is the record owner or legal titleholder of the financial account (regardless of whether the account is maintained for the benefit of the U.S. person or another person), the U.S. person has a financial interest in the account. Additionally, a U.S. person has an interest in a financial account if another person who is the actual owner of the account is acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person.31

Example: J, a U.S. person, agrees to hold $12,000 of his brother's (also a U.S. person) money in J's foreign bank account. There are two FBAR reporting requirements: J has a financial interest in the account, as he is the legal owner. J's brother also has a reportable interest, even though he is not the legal owner of, or signatory on, J's account. J is acting "in some other capacity" on behalf of his brother.

Another critical distinction between the Form 8938 and FBAR reporting requirements is that the FBAR regulations attribute interests in foreign financial accounts to U.S. persons who own majority interests in entities owning such accounts. If a U.S. person owns, directly or indirectly, (1) more than 50% of the voting power or total value of the shares in a corporation; (2) more than a 50% capital or profits interest in a partnership; or (3) more than a 50% interest in the voting power, total value of the equity interests or assets, or interest in profits of any other entity, then the U.S. person has a financial interest in any foreign financial account of such corporation, partnership, or other entity,32 and, subject to satisfying the $10,000 reporting threshold, must report the entity's foreign financial accounts. Moreover, the entity also has a separate FBAR reporting obligation if the entity is a U.S. person.

With respect to trusts, a U.S. person has a financial interest in a foreign financial account if the U.S. person has an ownership interest in a grantor trust owning such an account.33 Again, subject to the $10,000 reporting threshold, this can create a triple reporting obligation: (1) The U.S. person must report the trust's foreign financial accounts; (2) if the trust is a U.S. person, the trust has an FBAR reporting obligation; and (3) if the trustee is a U.S. person with signatory or other authority over the trust's foreign financial accounts, the trustee has a separate FBAR reporting obligation.

For trusts where a U.S. person has a present beneficial interest in more than 50% of the trust assets or receives more than 50% of the current income, the U.S. person reports the trust's foreign financial accounts (again, subject to the $10,000 reporting threshold).34 However, if the trust or trustee, or the agent of the trust, is a U.S. person filing an FBAR reporting the financial accounts of the trust, then the U.S. person beneficiary does not have an FBAR reporting obligation.35

Yet another difference between the Form 8938 and the FBAR reporting requirements involves signature authority. Unlike Form 8938, FBAR reporting also extends to individuals with signature authority over foreign financial accounts. An individual has signature authority over a foreign financial account if he or she (alone or in conjunction with another) can control the disposition of money, funds, or other assets by a direct communication to the person maintaining the financial account.36 This provision substantially broadens the classes of persons with FBAR reporting requirements. Individuals with signature authority over relatives' accounts in foreign countries (such as parents or children living in foreign countries) have an FBAR filing requirement; if the signature authority exists, it is irrelevant whether the individual ever exercises it.37

In addition, an individual who, in his or her capacity as an employee of an entity, has signature authority over foreign financial accounts (in excess of the $10,000 threshold) must separately file an FBAR on his or her own behalf reporting such entity's foreign financial account.38 There are limited exceptions for officers and employees of entities examined by certain regulatory authorities, entities listed on U.S. national securities exchanges, and entities with equity securities registered under Section 12(g) of the Securities Exchange Act of 1934, so long as the officers or employees have no personal financial interests in the foreign financial accounts.39

Special Reporting Issues

Subject only to the limited spouse exception discussed below, jointly held foreign accounts require each joint owner who is a U.S. person to report the entire maximum value of the account on an FBAR.40

FBAR reporting is an individual U.S. person requirement; generally, there is no "joint" FBAR. Unlike Form 8398, which specifically provides for a joint return filing, there is only a limited exception allowing spouses to file a joint FBAR. One spouse can file on behalf of the other spouse if "(1) all the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse; (2) the filing spouse reports the jointly owned accounts on a timely filed FBAR electronically signed . . . ; and (3) the filers have completed and signed Form 114a, Record of Authorization to Electronically File FBARs"41 (the Form 114a is retained in the filer's records). If the spouses do not satisfy all of these requirements, each spouse must separately file an FBAR and report the entire value of all the joint accounts.42

Minor children have a separate FBAR reporting requirement if they have a financial interest in, or signatory authority over, a foreign financial account. The Form 8938 filing requirements allow a parent to report a child's interest in a foreign account on the parent's return if the parent elects to include the child's unearned income in his or her gross income; no similar provision exists with respect to FBAR reporting. A child is responsible for filing his or her own FBAR, and if the child cannot do so for any reason, the child's parent, guardian, or other legally responsible person must file for the child.43

There are modified reporting requirements (generally, reduced detail) for U.S. persons with a financial interest in 25 or more foreign financial accounts,44 as well as U.S. persons with signature authority over 25 or more foreign financial accounts.45 There is also a special rule for an entity that is a U.S. person that owns, directly or indirectly, more than a 50% interest in one or more entities required to file FBARs; the entity may file a consolidated FBAR for itself and for all such entities.46

Record Retention Requirements

U.S. persons with FBAR filing requirements also must retain records that include (1) the name in which the account is maintained; (2) the account number; (3) the name and address of the foreign financial institution; (4) the type of account; and (5) the maximum value of each account during the reporting period.47 U.S. persons must retain these records for five years.48 It should be noted that this record retention period is longer than the customary three-year statute-of-limitation period applicable for tax matters documentation.

FBAR Penalties

Persons who fail to file an FBAR or otherwise fail to disclose information required by an FBAR and whose actions are not considered willful are potentially subject to a civil penalty of up to $10,000 for each such violation.49 The civil penalty, however, is not imposed if the violation was due to "reasonable cause" and "the amount of the transaction or the balance in the account at the time of the transaction was properly reported."50 However, if there is a willful violation of the FBAR reporting requirements, the maximum amount of the civil penalty is increased to the greater of $100,000 or 50% of the foreign financial account balance at the time of the violation.51 Further, criminal penalties may apply under certain circumstances.

The BSA and the applicable regulations do not define "reasonable cause." However, in a recent district court decision,52 the court specifically addressed the meaning of reasonable cause in the context of a nonwillful FBAR failure-to-file violation. The court took guidance from tax statutes and authorities and determined that reasonable cause is the exercise of ordinary business care and prudence. The court noted that the plaintiff, James Moore, completed a tax organizer furnished to him by his tax preparer. The questionnaire specifically asked whether he had "an interest in or signature or other authority over a financial account in a foreign country (such as a bank account, securities account, or other financial account)," to which Moore checked a box labeled "No."53 Further, in previous returns prepared by Moore himself, he failed to answer the same question on Form 1040, Schedule B, Interest and Ordinary Dividends. His failure to answer the question on Schedule B, as well as his "No" response to the identical question on the tax organizer questionnaire, constituted evidence that Moore failed to exercise ordinary prudence and resulted in an FBAR violation without reasonable cause. The court sustained IRS-imposed penalties of $40,000 ($10,000 per year for four years).

Prior court decisions have also defined the term "willful." In Williams,54 the taxpayer pleaded guilty to tax evasion and was assessed a civil penalty for the willful failure to file an FBAR. The court defined willfulness as "reckless conduct" or "willful blindness." In support of its finding that the taxpayer's conduct was willful, the court noted that the taxpayer failed to acknowledge (by answering "No") on Form 1040, Schedule B, that he had an interest in a financial account in a foreign country, and that he signed his return under penalties of perjury, thus certifying that his return was "true, accurate, and complete." The taxpayer did not consult an FBAR or its instructions and thus made a conscious effort to avoid learning about the FBAR reporting requirements. Further, he provided false answers on his accountant's tax organizer, answering "No" to whether he had an interest in a foreign financial account. Finally, the court noted that the taxpayer's guilty plea to tax evasion charges confirmed that his failure to file an FBAR was willful.

Another court also addressed the definition of "willful." In McBride,55 the taxpayer was assessed a civil penalty for willful failure to file an FBAR. The taxpayer engaged a firm to advise and assist him in an illegal scheme to avoid or defer taxes. The court noted the same patterns of conduct as in Williams when finding that the taxpayer's conduct was willful. The taxpayer signed his tax returns for the years in question and responded "No" to the question on Form 1040, Schedule B, that inquired as to any interests in foreign financial accounts. His willfulness was supported by his false statements on his tax returns and "his signature, under penalty of perjury, that those statements were complete and accurate."56 He failed to inform his accountant that he had any foreign bank accounts. He specifically read the marketing materials the firm provided to him, which informed him of his responsibility to report his foreign financial accounts. The court also noted that the taxpayer attempted to mislead the IRS, lied about facts, withheld information, and failed to disclose evidence. The court found that the taxpayer's conduct was either reckless or willfully blind with respect to failing to comply with the FBAR requirements.

The patterns of conduct that distinguish a willful FBAR violation from a nonwillful violation are not extraordinarily clear. In both Moore and Williams, the courts placed great emphasis on the taxpayers' false answers on their accountants' tax organizers and the taxpayers' "No" responses to the question on Form 1040, Schedule B. Practitioners and their clients should be mindful of the language in Moore, as the court was clear on its view of this conduct: "Evidence that a taxpayer ignored relevant questions on Schedule B and in tax organizers is evidence of willful conduct."57 However, one prominent distinction between the Moore reasonable-cause case and the Williams and McBride willfulness cases is the taxpayers' conduct. In Moore, the taxpayer was not involved in a tax evasion investigation, and he approached the IRS through counsel to amend tax returns (although he still failed to file FBARs). The taxpayers' conduct in Williams and McBride was much more egregious and involved tax evasion charges (Williams) or deceitful and evasive conduct (McBride).

There should also be no question of the Service's willingness to seek incarceration in addition to substantial FBAR penalties for willful violations. In Warner,58 the taxpayer pleaded guilty to evading $5.6 million in U.S. taxes by hiding assets in a Swiss bank account. The district court imposed a sentence of two years' probation with community service, a $100,000 fine with costs, and a civil FBAR penalty of $53,552,248, which was equal to 50% of the maximum balance in his offshore account. The government appealed, contending that the sentence was unreasonable because it omitted a prison term. Fortunately for the taxpayer, the appellate court upheld the district court's sentence, noting the taxpayer's truly benevolent character, his level of cooperation with the prosecution, his attempt (albeit too late) to come forward and disclose his offshore activities, and his payment of an FBAR penalty of nearly 10 times the tax liability. However, the appellate court placed considerable weight on the district court's assessment of the taxpayer's character and noted that the circumstances unique in this case did not restrict the government from obtaining prison sentences in more typical cases with lower tax losses.

Implications for Practice

The reporting requirements for an FBAR impose significant challenges on tax practitioners. In many cases, the biggest challenge is ferreting out the necessary information from the client. This is particularly important if the practitioner is preparing an FBAR, with its low reporting threshold, expansive definition of financial accounts, and broad classes of individuals and entities with filing obligations. Best-practice recommendations for dealing with clients and these reporting obligations are outlined below.

Clearly and specifically discuss the foreign account and asset reporting requirements in your tax return engagement letter and use a separate engagement letter for an FBAR: Circular 230 best practices obligate practitioners to communicate clearly with the client regarding the terms of the engagement.59 The tax return engagement letter should request all information regarding foreign financial accounts and assets for preparation of the Form 8938 if necessary and should clearly specify whether the practitioner is preparing an FBAR.

Many professional liability insurance programs provide sample engagement letters for Form 1040, U.S. Individual Income Tax Return, specifically addressing an FBAR. For example, the sample Form 1040 engagement letter provided through the CNA/AICPA Professional Liability Insurance Program clearly delineates that an FBAR is not a tax return and that its preparation is outside the scope of the tax return engagement. If the practitioner is preparing an FBAR, a separate engagement letter is advisable. Again, many professional liability insurance programs provide sample FBAR engagement letters with numerous examples of accounts that may qualify for reporting. One distinct advantage of these letters is that they educate and inform the client through an expanded discussion of foreign account reporting requirements.

Be comprehensive in your organizer: Circular 230 requires a practitioner to exercise due diligence when preparing, approving, or filing tax returns.60 Many practitioners use organizers, and most organizers generically inquire, for purposes of completing Schedule B, whether the client has an interest in, or signature authority over, a financial account in a foreign country. Courts have placed considerable weight on taxpayers' marking "No" to this question on a practitioner's organizer in determining whether there is evidence of a lack of care, recklessness, or willful blindness. As a practical matter, many clients opt not to complete the organizer or blindly check "No" to most questions.

If an organizer is used, an improved approach would be to provide additional content in the organizer listing examples of interests in foreign accounts that may be overlooked by taxpayers, such as an executor of an estate or the trustee of a trust with a foreign account, accounts for the benefit of minors, foreign accounts of an entity in which the taxpayer has a majority interest, signature authority (for emergencies) over a relative's foreign account, and signature authority in an employer's or client's foreign account. FBAR reporting applies for another person's funds if the taxpayer has signature authority, which includes knowledge of passwords and user names for electronic accounts.

Specifically inquire in client interview meetings and follow up: Many smaller firms rely on client interview meetings to discuss the year's financial activities. This provides an ideal time to discuss examples of accounts that must be reported and the ramifications for noncompliance, but it is strongly advisable to follow up in writing (e.g., through an organizer or even a specific email).

Check your tax preparation software: Tax software systems may default to mark "No" on the Schedule B questions without requiring input from the tax preparer. This invites neglecting the Schedule B questions, especially during a busy tax return period. A practitioner's tax return review process should document that he or she has made a formal inquiry regarding the existence of foreign financial accounts.

Be especially vigilant if you become aware of any offshore transactions or accounts: Circular 230 provides that a practitioner can rely without verification on information furnished by the client but may not ignore the implications of information supplied by the client or known by the practitioner, and must make reasonable inquiries if the information appears incorrect, inconsistent, or incomplete.61 Further, a practitioner must exercise due diligence when determining the correctness of representations he or she makes to the Treasury Department.62 If the practitioner is preparing a Form 8938, foreign accounts clearly are involved; in many cases, an FBAR filing obligation will be apparent, and the box on Schedule B must be checked "Yes."63

Further, if the practitioner otherwise becomes aware of other information suggesting an FBAR filing requirement, the practitioner has an obligation to advise the client of his or her FBAR filing obligations as well as the consequences of failing to file. This is particularly important if the practitioner is preparing Form 8938 and is not preparing an FBAR, as clients may incorrectly assume that they have satisfied their foreign account reporting obligations by having Form 8938 included in their tax return. Practitioners should note that the reporting obligations under both forms are completely independent of each other.64

Be aware of your obligations if you become aware of a client's undisclosed foreign account: Circular 230 requires the practitioner to advise a client of penalties that are reasonably likely to apply with respect to a position taken on the tax return, as well as any opportunities to avoid penalties through disclosure and the terms of such disclosure.65 Filing amended tax returns (to amend or include a Form 8938) or filing amended or delinquent FBARs requires careful consideration. Previous incomplete or inaccurate FBAR filings require filing an amended FBAR.66 Caution should be taken when amending prior FBARs, as there is no penalty protection, and the Service may impose penalties for errors that were not due to reasonable cause.

For clients with delinquent FBARs, filing programs are available with various levels of penalty protection or penalty mitigation.67 Clients with delinquent FBARs who have properly filed income tax returns that fully report income from such foreign accounts may be eligible to use the Delinquent FBAR Submission Procedures.68 For other clients who negligently (nonwillfully) failed to file their FBAR reports and failed to properly report income from such foreign accounts, the IRS's Streamlined Filing Compliance Procedures may be available.69 For clients whose conduct could be deemed a willful failure to file and report income, the Service's 2012 Offshore Voluntary Disclosure Program may be available.70

Do not hesitate to engage counsel: Due to the magnitude of the penalties involved, as well as potential criminal prosecution in cases of conduct deemed willful, it is advisable for the client to engage legal counsel for FBAR matters other than correcting minor mistakes on previously filed FBARs. In many cases, delinquent FBARs will also involve incorrect statements on Form 1040, Schedule B, and, as noted in Moore, such errors could be construed as willful conduct.


The FBAR reporting requirements can be daunting, especially for practitioners with little international reporting experience. The consequences of noncompliance can be severe for taxpayers and professionally damaging for practitioners. However, if practitioners become familiar with the requirements, educate clients regarding their foreign financial account reporting obligations, and exercise due diligence when accumulating and analyzing information for tax return preparation, they can provide a significant benefit to their clients as well as protect themselves from claims of failing to inquire about foreign accounts or failing to advise that an FBAR filing was required.  


1IRS News Release IR-2016-17, "Hiding Money or Income Offshore Resides on the 'Dirty Dozen' List of Tax Scams for the 2016 Filing Season" (Feb. 5, 2016).

2IRS News Release IR-2016-42, "Foreign Account Filings Top 1 Million; Taxpayers Need to Know Their Filing Requirements" (March 15, 2016).


4For example, Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, for reporting transfers of property to foreign corporations; Forms 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner, for reporting affiliations with foreign trusts or the receipt of gifts from non-U.S. persons; Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, for reporting interests in foreign controlled corporations and reporting transactions with foreign corporations; and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, for reporting interests in foreign partnerships.

5The Foreign Account Tax Compliance Act (FATCA) provisions were part of the Hiring Incentives to Restore Employment (HIRE) Act of 2010, P.L. 111-147, signed into law on March 18, 2010. Sec. 6038D was added to the Code by Section 511 of FATCA and imposes an annual tax return filing obligation on certain persons with interests in specified foreign financial assets for tax years beginning after the date of enactment.

6Bank Secrecy Act of 1970, P.L. 91-508.

731 U.S.C. §5311.

8Preamble, T.D. 9657.

931 C.F.R. §1010.306(c).

10Regs. Sec. 1.6038D-2(a)(1). Final regulations under Regs. Sec. 1.6038D-6 (T.D. 9752) issued on Feb. 22, 2016, require certain domestic entities to file Form 8938 for tax years beginning after Dec. 31, 2015. Prior to these regulations, the Form 8938 filing requirements applied only to individuals.

11Regs. Sec. 1.6038D-2(a)(4).

12FinCEN, BSA Electronic Filing Requirements for Report of Foreign Bank and Financial Accounts (FinCEN Form 114) (June 2014), available at (FBAR instructions).

13FBAR instructions, p. 10.




17FBAR instructions, p. 4.

18Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, §2006(b)(11).

1931 C.F.R. §1010.350(b).

2031 C.F.R. §1010.100(hhh).

21IRS FBAR Reference Guide, p. 2, available at

22Regs. Sec. 1.6038D-6 generally requires that such entities be closely held and meet certain passive gross income requirements or hold a certain percentage of their assets for the production of passive income.

23IRS FBAR Reference Guide, p. 2.

2431 C.F.R. §1010.350(c)(2).

2531 C.F.R. §1010.350(c)(3).

26See IRS FBAR Reference Guide, p. 3. However, 31 C.F.R. §1010.350(g)(4) specifically excludes participants and beneficiaries in retirement accounts under Secs. 401(a), 403(a), and 403(b), as well as owners and beneficiaries under IRAs or Roth IRAs, from being required to file FBARs for foreign financial accounts held by or for such retirement plans or accounts.

27Hom, 45 F. Supp. 3d 175 (N.D. Cal. 2014), aff'd in part, rev'd in part, and remanded, No. 14-16214 (9th Cir. 7/26/16).

28Koski, "Bitcoin—Tax Planning in the Uncertain World of Virtual Currency," 93 Practical Tax Strategies 255 (2014).

2931 C.F.R. §1010.350(d).

3031 C.F.R. §1010.350(c)(4).

3131 C.F.R. §1010.350(e)(2)(i).

3231 C.F.R. §1010.350(e)(2)(ii).

3331 C.F.R. §1010.350(e)(2)(iii).

3431 C.F.R. §1010.350(e)(2)(iv).

3531 C.F.R. §1010.350(g)(5).

3631 C.F.R. §1010.350(f).

37IRS FBAR Reference Guide, p. 5.

38FinCEN has recently issued proposed regulations that would expand the existing filing exemptions for officers, employees, or agents to address overlapping signature authority for U.S. parent and U.S. subsidiary accounts within the same corporate or business structure where those accounts are already required to be reported by the corporate or business structure. See RIN 1506-AB26, "Notice of Proposed Rulemaking, Financial Crimes Enforcement Network; Amendment to the Bank Secrecy Regulations—Reports of Foreign Financial Accounts," 81 Fed. Reg. 12613 (March 10, 2016).

3931 C.F.R. §1010.350(f)(2).

40IRS FBAR Reference Guide, p. 5.



43FBAR instructions, p.6

4431 C.F.R. §1010.350(g)(1). However, FinCEN has proposed amended regulations that would require additional detailed reporting for all foreign financial accounts in situations where a filer has 25 or more foreign financial accounts. See RIN 1506-AB26, Notice of Proposed Rulemaking.

4531 C.F.R. §1010.350(g)(2).

4631 C.F.R. §1010.350(g)(3).

4731 C.F.R. §1010.420.


4931 U.S.C. §5321(a)(5)(B)(i).

5031 U.S.C. §5321(a)(5)(B)(ii).

5131 U.S.C. §5321(a)(5)(C).

52Moore, No. C13-2063RAJ (W.D. Wash. 4/1/15).

53Id., slip op. at 11.

54Williams, 489 Fed. Appx. 655 (4th Cir. 2012).

55McBride, 908 F. Supp. 2d 1186 (D. Utah 2012).

56Id. at 1208.

57Moore, No. C13-2063RAJ (W.D. Wash. 4/1/15), slip op. at 13 (emphasis added).

58Warner, 792 F.3d 847 (7th Cir. 2015).

59Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), §10.33(a)(1).

60Circular 230, §10.22(a)(1).

61Circular 230, §10.34(d).

62Circular 230, §10.22(a)(2).

63Many, but not all, situations require both a Form 8938 and FBAR filing. See IRS, "Comparison of Form 8938 and FBAR Requirements" (May 4, 2016), available at

64Form 8938 instructions, p. 1.

65Circular 230, §§10.34(c)(1) and (2).

66FBAR instructions, pp. 8-9.

67Several articles have discussed the alternatives for clients with unreported foreign accounts. See Novak, "What to Do When a Client Has an Undisclosed Foreign Account," 216-6 Journal of Accountancy 38 (December 2013); Michel, "Strategies for Current Filings of Noncompliant Taxpayers as FBAR Deadline Approaches," 92 Practical Tax Strategies 207 (2014).

68IRS, "Delinquent FBAR Submission Procedures" (April 8, 2016), available at

69IRS, "Streamlined Filing Compliance Procedures" (July 18, 2016), available at

70IRS, "2012 Offshore Voluntary Disclosure Program" (March 10, 2016), available at



Susanne Holloway is a professor of the practice, and Michael Schuldt is an assistant professor, both in the Franklin P. Perdue School of Business of Salisbury University in Salisbury, Md. For more information about this column, contact


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