I Never Filed FBARs or Reported Foreign Income. How Do I Get Compliant?

Step one: what exactly was missed?

• Only FBARs, with all foreign income correctly reported on filed returns
• Only international information returns, such as Forms 5471, 8938 or 3520, with income reported
• Foreign income that was not reported, with or without missing FBARs
• No U.S. returns at all for several years

These categories lead to different procedures. The presence or absence of unreported income, and the reason it was unreported, drive the choice.

When only FBARs were missed

Taxpayers who reported all income from foreign accounts on their U.S. returns and paid the related tax, but did not file FBARs, may use the delinquent FBAR submission procedures if they are not under civil examination or criminal investigation and have not been contacted by the IRS about the missing FBARs. The FBARs are filed electronically through FinCEN with an explanation of the late filing. The IRS has stated it will not impose a penalty in these circumstances, although it may still select the submissions for examination.

The Streamlined Filing Compliance Procedures

The Streamlined procedures are designed for individuals whose failure to report foreign income, file information returns or file FBARs resulted from non-willful conduct — negligence, inadvertence, mistake, or a good-faith misunderstanding of the law. The taxpayer files amended or original returns for the most recent three years for which the due date has passed, files FBARs for the most recent six years, pays tax and interest, and signs a certification of non-willfulness.

Streamlined Foreign Offshore

Available to U.S. citizens and green card holders who meet the non-residency requirement — generally, in at least one of the three most recent years, having no U.S. abode and being physically outside the United States for at least 330 full days. No miscellaneous offshore penalty is imposed. Many Americans living in Latin America, Europe and Canada qualify.

Streamlined Domestic Offshore

Available to individuals who do not meet the non-residency requirement but did file U.S. returns for each of the three years. A miscellaneous offshore penalty equal to 5 percent of the highest aggregate year-end balance of the foreign financial assets that should have been reported is imposed in place of other penalties.

The non-willful certification

The certification requires a narrative explaining the specific reasons for the failure, including favorable and unfavorable facts. It is signed under penalties of perjury. A generic statement is a common weakness. The narrative should address the taxpayer's background, how the accounts arose, who prepared prior returns and what information they had, and when and how the obligation was discovered. If the facts do not support non-willfulness, the Streamlined procedures are not the right path.

When the conduct may have been willful

Willfulness includes knowingly disregarding a known obligation and, in some courts, reckless disregard or willful blindness. Taxpayers in this situation generally should consider the IRS Criminal Investigation Voluntary Disclosure Practice, which involves a preclearance request, a six-year disclosure period in most cases and significant civil penalties, but is designed to resolve criminal exposure. Anyone in this position should consult a tax attorney before filing anything.

Penalties the procedures are designed to avoid

The non-willful FBAR penalty is adjusted for inflation each year. In Bittner v. United States, the Supreme Court held in 2023 that the non-willful penalty applies per report rather than per account, which reduced exposure for many taxpayers. Willful penalties can be the greater of an inflation-adjusted dollar amount or 50 percent of the account balance per violation. Information-return and accuracy penalties can apply on top of FBAR penalties.

Common missteps

• Filing six years of FBARs on their own when foreign income was also unreported
• Using Streamlined Domestic Offshore when the facts support Foreign Offshore
• Writing a non-willful narrative that contradicts prior filings or bank records
• Omitting related information returns, such as Form 8938 or Form 5471, from the amended returns
• Waiting until an IRS letter arrives, after which the Streamlined procedures are no longer available

Sources and official references

• IRS — Streamlined Filing Compliance Procedures
• IRS — U.S. taxpayers residing outside the United States (Streamlined Foreign Offshore)
• IRS — Delinquent FBAR Submission Procedures
• IRS — Options available for U.S. taxpayers with undisclosed foreign financial assets
• Supreme Court — Bittner v. United States (2023)