Let’s Talk About Tax

For more than 50 years, the IRS provided various procedures for taxpayers who had failed to file their required “Report of Foreign Bank and Financial Accounts” (FBARs) on FinCEN Form 114 under the U.S. Bank Secrecy Act. Some of those procedures, for eligible taxpayers, provided a single penalty regime that encompassed both the failure to report income from reportable accounts on tax returns and the failure to report the required foreign account information. These “streamlined” procedures, however, applied only if taxpayers could establish that they were “nonwillful” to the Service’s satisfaction and only if they filed all required information and paid required taxes and the single penalty before being contacted by the IRS.

There was also a more generous compliance effort by the Service relating to FBARs when taxpayers had already, in a timely manner, filed their tax returns and included all required income on them from their foreign accounts (such as foreign dividends and interest on Schedule B), but merely failed to file the required FBAR form or perhaps had inadvertently omitted including a foreign account over which they had signature authority but no beneficial interest. In these latter cases, the IRS had a program, the Delinquent FBAR Submission Procedures (DFSP), for qualifying taxpayers to get them current pursuant to this limited penalty-free program without having to convince the IRS to waive the penalty due to reasonable cause. Taxpayers did have to select a reason for their late FBAR filing from the form’s dropdown box.

However, on July 1, 2026, the IRS quietly removed the webpage from its website that was dedicated to those DFSP Procedures, thereby creating significant uncertainty for taxpayers who had qualified for DFSP relief and wanted to take advantage of that assured penalty-free way for qualifying taxpayers to correct inadvertent missed FBAR filings.

So, as we said, “Now what?”

Whether the IRS intentionally discontinued the program or inadvertently removed the webpage, the practical effect is that taxpayers can no longer affirmatively point to IRS guidance promising penalty relief for these kinds of delinquent FBAR submissions.

A Refresher on FBAR Reporting Requirements

The FBAR, FinCEN Form 114, must generally be filed annually by a U.S. person with a financial interest in or signature authority over foreign financial accounts if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. A reportable foreign financial account includes foreign checking and savings accounts, brokerage accounts, and mutual funds. It can also include commonly overlooked assets, such as certain foreign pension and retirement accounts, insurance policies with cash surrender value, and annuity policies with cash value. The reportable income from those foreign accounts and assets is specifically included on the taxpayer’s income tax return, such as on Schedule B for individual filers, which in Part III asks specific questions regarding the filer’s foreign accounts and trusts, directing them specifically to potential requirements to file FBARs and Form 8938.

Importantly, the FBAR is not filed with an individual’s income tax return, though Form 8938 (required pursuant to the Foreign Account Tax Compliance Act (FATCA)) is filed with the income tax return. Rather, the FBAR is filed electronically through FinCEN’s BSA E-Filing system. The FBAR filing deadline is April 15, with an automatic extension to October 15. In addition to the compliance/filing differences between the FBAR and Form 8938, there are some filing/reporting overlaps to be addressed as well. In other words, having foreign accounts and assets is and continues to be a compliance morass for taxpayers and preparers alike.

FBAR Penalties Can Be Severe

The DFSP’s disappearance has taxpayers and practitioners on edge because FBAR penalties remain among the most severe information-return penalties under the Internal Revenue Code and Bank Secrecy Act.

The severity of the penalty depends on whether the failure to file was non-willful or willful, and some cases may also carry criminal exposure. Non-willful civil violations may result in civil penalties of up to $10,000 (as adjusted for inflation) per report. Willful civil violations, however, can trigger penalties equal to the greater of $100,000 (as adjusted for inflation) or 50% of the account balances, potentially across multiple years. In egregious cases involving concealment, false statements, tax evasion, or similar misconduct, criminal investigation or prosecution may also be possible. Given these risks, taxpayers with unfiled FBARs should carefully evaluate their compliance options before submitting delinquent forms.

So, What’s Next for Taxpayers With Delinquent FBARs?

Some taxpayers (or their advisors) may still consider filing delinquent FBARs consistent with the former DFSP, but without the benefit of affirmative published IRS guidance, there is no guarantee of penalty relief for those submissions. Of course, filing late or updated FBARs raises the specter of specific attention by the Service to such filings. Other options for careful consideration with one’s tax advisor may include the following:

• Streamlined Offshore Procedures
• IRS Criminal Voluntary Disclosure Practice
• Filing delinquent FBARs through normal channels (with reasonable cause documentation)

Because each option carries different risks, a taxpayer’s specific situation, particularly whether the conduct was non-willful or potentially willful, is critical to the analysis and corrective filing advice.

For taxpayers whose noncompliance conduct was non-willful, the Streamlined Offshore Procedures may provide the most structured pathway back into compliance. These procedures generally require amended returns, filing delinquent FBARs, payment of tax and interest, and a certification under penalties of perjury that the violation was non-willful. The applicable penalty is equal to 5% of the highest aggregate balance or value of covered foreign assets during the penalty period. However, if a previously noncomplying taxpayer can qualify under the relevant Streamlined program, they would have the benefit of more certainty than filing outside an established IRS program or risking a “quiet disclosure” filing. Notably, taxpayers who qualify as foreign residents under the Streamlined Foreign Offshore Procedures may be eligible for zero penalties.

Taxpayers with potential willfulness concerns should consider the IRS Criminal Voluntary Disclosure Practice. Although this process is more time-consuming and costly, it offers a formal process for resolving serious offshore compliance issues and may reduce the risk of criminal prosecution where the facts otherwise may present badges of willfulness or intentionality regarding noncompliance.

Lastly, filing delinquent FBARs through normal channels accompanied by strong “reasonable cause” documentation is still a viable option based on the Internal Revenue Manual in some cases, particularly where all foreign income was reported properly and on time. But even in these cases when no additional tax is due and the taxpayer can demonstrate reasonable cause for the prior nonfiling, this approach carries greater uncertainty for the filing taxpayers. It specifically identifies the prior failure to file (or properly complete) the FBAR and is submitted only with a reasonable cause explanation that may or may not be accepted by the Service — even if it takes a conference with IRS Appeals to have an agent pay attention to that explanation.

Conclusion

Given the signal from the IRS of a potential policy shift in its FBAR enforcement approach, as evidenced by the removal of formal DFSP guidance by the IRS, taxpayers should seek professional advice and carefully evaluate their facts and the strength of their explanations for prior nonfiling or noncompliance with the FBAR requirements. The days of quietly catching up with guaranteed penalty relief may be over. The IRS’s decision to remove the DFSP webpage leaves taxpayers with greater uncertainty and fewer options.

For more information or questions, contact Ken Levinson or Teri Jackson.