What is the FBAR? 

FBAR is an acronym for the Foreign Bank and Financial Account Report (FinCEN 114). The FBAR summarizes your foreign financial accounts and several types of accounts must be reported on this form; general opinion suggests that if you aren't sure of whether or not something should be included in your FBAR, you should err on the side of caution and include it anyway.

The IRS has been conducting FBAR Audits with increasing regularity; this is because so many organizations and individuals are out of Offshore Tax Compliance for things like FBAR filing, FATCA report, and Foreign Income Disclosures. To put it in the simplest terms possible, the overall rules regarding the FBAR1 boil down to this2:

"If at any point during the year you have more than $10,000 combined in all of your foreign accounts so that your annual aggregate total exceeds $10,000, you are required to file an FBAR statement for that year."

What's Involved in an Investigation

You may find yourself in the middle of an FBAR investigation if it appears that you needed to file the FBAR and then failed to do so knowingly or willfully. If these suspicions are confirmed during the investigation, you may find yourself facing criminal fines and penalties up to and including imprisonment. 

The goal of any investigation will be to determine the presence of guilt; if you're believed to be guilty of tax evasion, the IRS will seek to show that you were willful in hiding financial figures. In order to do this, an agent or team from the IRS will come into your business to look for evidence that shows willfulness. Agents will look for points of reasonable cause3 regarding why you may have failed to file.

  • The key step of the investigation involves proving a violation exists. This is a multi-step process that hinges on an examiner proving several things:
    • The person to be charged is a US person
    • The person to be charged had a financial interest in or authority over one or more accounts
    • Each account was a foreign financial account
    • The aggregate balance of the foreign financial accounts was greater than $10,000 at any given time during the calendar year

How Your Business Should Prepare 

You'll want to make an FBAR investigation as smooth as possible for the sake of your own organization and for the agents who will be investigating you. Keeping a tight thumb on your financial documents and ensuring that they're organized and easily accessible may save you immeasurable time and hassle during an investigation. The following documents4 are good choices for having on-hand in the event of an investigation:

  • Copies of statements for the foreign bank account
  • Notes of examiner interviews with foreign account holders about the foreign account
  • Correspondence with account holder's tax return preparer
  • Documents showing criminal activity related to non-filing of the FBAR
  • Promotional material from offshore banks
  • Debit or credit card statements from the offshore bank that reveal the account holder using funds from the account in a manner that conceals the source of the funds
  • Copies of any previous FBARs filed by the account holder
  • Copies of Information Document Requests; highlight requested items that were not provided and give explanations as to why this information was not provided
  • Copies of credit and debit card agreements and fee schedules with the foreign bank
  • Copies of any broker's agreements or fee schedules with the foreign bank
  • Written explanation for why the FBAR was not filed

While undergoing an FBAR investigation can be a stressful time for an organization, staying on top of the paperwork game and being forthcoming can wind up saving you headaches down the line. If you're interested in learning more about FBAR violations and investigations-- or what to do when they occur-- contact us today.

  1. https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements
  2. https://www.goldinglawyers.com/fbar-investigation-2018-how-does-the-irs-find-and-audit-you/
  3. https://www.bragertaxlaw.com/files/sbse_doc_%20161.pdf
  4. https://www.kpateloffice.com/irs-investigation-fbar-violation/