In U.S. tax practice, one of the most frequent—and unfortunately most serious—issues I encounter is the failure to file the Foreign Bank Account Report (FBAR).
Many clients tell me, “I just forgot,” but given how significant the penalty risks can be, this is not something that can be dismissed as a simple oversight.
Over the years, I’ve noticed that FBAR omissions tend to stem from a few recurring misunderstandings.
❌ Mistake #1: “My balance is small, so I assumed it didn’t matter.”
Misunderstanding the reporting threshold
This is by far the most common misconception.
Clients often believe that because each account holds only a few hundred dollars, they are exempt from reporting.
However, the FBAR threshold is based not on individual account balances, but on the combined total of the highest balances across all foreign accounts during the year.
For example:
-
Account A highest balance: $4,800
-
Account B highest balance: $3,000
-
Account C highest balance: $2,700
Combined total: $10,500 → FBAR filing required
Even if each account is small, once the aggregate highest balance exceeds $10,000, FBAR filing becomes mandatory.
❌ Mistake #2: “There was no interest, so I thought it didn’t affect my tax return or FBAR.”
Confusing two separate reporting requirements
FBAR and the federal income tax return involve completely different obligations.
✔ FBAR (FinCEN Form 114)
-
Reports the balance in foreign financial accounts
-
Filed with FinCEN, not the IRS
✔ Tax Return (IRS Form 1040)
-
Reports income generated from foreign accounts (interest, dividends, etc.)
-
Filed with the IRS
Even if your account earned zero interest,
if your total foreign account balances exceeded $10,000, you must still file FBAR.
One requirement does not exempt the other.
❌ Mistake #3: “My family manages the account, so I assumed it wasn’t really mine.”
Misunderstanding the role of account ownership
This issue often arises with accounts managed by family members abroad or accounts that have been dormant for years.
The FBAR test is based on legal ownership, not who actually uses or controls the account.
👉 If the account is in your name, then:
-
It does not matter whether you used it
-
It does not matter whether it is inactive
-
It does not matter whether a family member manages it
The account must be included in your aggregate highest balance for FBAR reporting.
🔑 If You Discover You Missed an FBAR Filing
Many clients come to me feeling anxious after realizing they missed an FBAR requirement.
Fortunately, the solution is usually straightforward if the omission was not intentional.
✔ 1) Delinquent FBAR Submission
If the failure to file was non-willful, you can file the missing FBARs under the Delinquent FBAR Submission procedures.
When taxpayers voluntarily correct the mistake promptly, cases are often resolved without penalties.
✔ 2) Form 1040-X Amended Tax Return
If the same account also generated income (interest, dividends, etc.) that was not reported,
you must also file an amended tax return to correct the income omission.
FBAR filing and tax return reporting are handled separately, but both must be corrected to fully resolve the issue.
📌 Final Advice
Penalties increase significantly if the IRS or FinCEN identifies the omission before you do.
Therefore:
👉 The best protection is to correct the issue as soon as you become aware of it.
👉 If you have foreign accounts—or are unsure whether previous filings were properly done—consult a professional promptly.