Until June 18, 2014, US residents who failed to file FBAR forms and report income from “offshore” accounts on their US tax returns had significant penalty exposure and were not eligible for most relief provisions. IRS Notice IR-2014-73 changes this, and provides additional options to US residents.

Background and “Old” Rules

(“FBAR” means foreign bank account reporting, and “FBAR form” means FinCEN Form 114, which was previously Form TDF 90-22.1. A “US resident” is an individual residing in the US who is a citizen, green card holder or required to file under the substantial presence test.)

By way of background, FBAR penalties arise if a taxpayer fails to disclose offshore bank accounts by filing FBAR forms and also fails to report the related income. (There are no FBAR penalties if the taxpayer reports all of the income on the offshore accounts.) Penalty relief has always been available to US citizens living overseas. Through use of the “streamlined procedure,” these nonresident taxpayers will avoid FBAR penalties (and all other penalties) by (1) filing delinquent or amended income tax returns for the prior three years and paying all delinquent tax and interest, (2) filing delinquent FBAR forms for the prior six years, and (3) filing a certification. But this avenue was not available to US residents. A common example is a US resident who inherits a foreign account and fails to file FBAR forms and report nominal interest income. Such a person was relegated to either (i) paying a 27.5% penalty under the Offshore Voluntary Disclosure Program, or (ii) filing the delinquent FBARs with reasonable cause penalty waiver requests and hoping the $10,000/account/year penalty would be waived.

IRS Notice IR-2014-73 liberalizes relief available to US residents.

New Streamlined Procedure Relief for US Residents

Under the new domestic streamlined procedure, US residents can become tax compliant without exposure of the regular FBAR penalties by paying the “Title 26 miscellaneous offshore penalty” equal to 5% of the highest aggregate year-end balance in offshore accounts over the last six years.

In general, a US resident is eligible for the streamlined procedure relief only if the failure to file FBAR forms was not willful. For example, failure to file is non-willful if due to negligence, inadvertence, mistake or a good faith misunderstanding of law. Also, no streamlined procedure relief is available if the IRS has already initiated a civil examination of the taxpayer’s returns for any period.

A US resident must take the following action in order to use the streamlined procedure: (1) file Form 1040X amended income tax returns for the prior three years and pay all delinquent taxes and interest, (2) file FinCEN 114 FBAR forms for the prior six years, (3) file a six-page certification with detailed information about offshore accounts for the prior six years, (4) pay the 5% penalty. The certification at (3) above must include specific reasons for failing to report income on offshore accounts and file the related FBAR forms. Also, if the taxpayer relied on professional advice, the advisor’s name, address, telephone number and summary of advice must be included.


The new streamlined procedure for US residents is an improvement, albeit painful. For example, if a US taxpayer failed to file FBAR forms and report nominal interest income on an offshore account of only $100,000, the cost of compliance is $5,000 plus professional fees for amended returns, delinquent FBARs and the certification. Some taxpayers may try to avoid all penalties by relying solely on a reasonable cause penalty waiver request. Under this route, the taxpayer must still file amended income tax returns and delinquent FBARs. The risk is that the taxpayer might be tagged with a $10,000/year/account penalty in lieu of the 5% penalty. On balance, most taxpayers will probably gulp and accept a 5% penalty in lieu of the uncertainty and risk of the alternatives.


  1. On August 19 2014 I received a phone call from Doreen Klein a New York Attorney hired by BEKB a Bank in Switzerland. I had an account with my Swiss business partner in BEKB from 2004 to may 2010.

    Klein asked if I had filed a FBAR for the years I had the account. I said no because the account was in both our names (mine and my Swiss partner) and I thought any required reporting would be done by the Swiss Partner.

    The account was opened for depositing my share of the profits in the Swiss business. I would periodically do an electronic transfer of money from this account to my Bank of America Account. All the money from this account was reported to my USA Accountant and reported to the IRS on my tax returns. The account was closed May 2010. Klein then told me to file a delinquent FBAR submission before the IRS contacted me in order to prevent any egregious penalties.

    Can I file a delinquent FBAR Submission report myself (I am a college educated Doctor) or are there information requirements that need my Accountants input or Attorney’s review ?

    William E. Barnett DVM

    • Dr. Barnett,

      I would hire an accountant or attorney to prepare and file the FBARs. The potential penalties are huge, so it is important to use a professional to cure the delinquent FBARs. Swiss bank accounts are a “hot button” of sorts with the IRS, so I would be especially careful.


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