FBAR Streamlined Filing Compliance Procedure

[KayaDane]

While doing my 2023 taxes I discovered that I messed up my 2022 taxes by failing to include a Canadian Registered Retirement Savings Plan in my calculations  for the Form 8938 reporting threshold. I also mistakenly left this account off my 2022 FBAR. Last year (2022 tax year) was the first year I filed the FBAR. I wrongly believed RRSPs were exempt from the FBAR filing requirement. I now know otherwise. As far as my taxes go, this error only affects my 1040 for the 2022 tax year. My question is: do I now need to follow the FBAR Streamlined Filing Compliance Procedure and submit 3 years of amended tax returns (even though only one year will be changed)? Or, do I submit an amended 1040 and an amended FBAR for tax year 2022, plus the delinquent FBARs for the previous years? If the latter, do I also include Form 14654 with my amended return?

Thank you in advance to anyone who knows the answer to this!

[DaveF1006 · Accepted solution]

You can file an amended Turbo Tax return and include the pension on the 8938 and report it as a Foreign Financial Asset. This won't generate a tax due for now but the IRS may contact you shortly. When it asks why you are amending, be specific in your answer. 

For filing an amended FBAR, follow the procedures that are in this link. Look on page two of this pdf regarding instructions for filing an amended FBAR. You would report all FBAR filings here. 

According to this information in this IRS website, it does say to file amended returns for the most recent U.S. tax return due date (or properly applied for extended due date) has passed, it says to include forms 8938. The other the forms  are not applicable to you. It mentions to include these forms even though these forms would have not been submitted in a properly submitted tax return. We are talking about years 2020 & 2021. Keep in mind, if you didn't file a US return originally in 2020-2021, then you would not file an amended return. 

All  these amended returns will need to be paper-filed and you would include a 14654. There is a mailing address at the end of the website. here is is a link within the website link I provided that will provide a downloaded copy. 

It does mention to submit a tax due amount in the returns but I doubt if a tax due will be assessed in your amended 2022 return for not reporting the 8938. The IRS can impose a penalty for $10,000 for not reporting this but may waive the penalty if the omission was not willful misconduct. There is a miscellaneous offshore penalty that needs to be submitted, which is 5% of the highest balance your pension accumulated during the year. That payment needs to be submitted with your return as per IRS instructions.

In retrospect, follow the procedures very closely that is outlined in the IRS website listed above. Also, include a detailed statement on why you did not report this asset. The IRS likes details and such a statement will be favorable in your case. Here is an additional resource for you that may provide additional information. In your statement, stress the fact that 2022 was the only year you did not report your RRSP as a foreign financial asset and you are including 2020-2021 returns because of the IRS instructions, which are not really clear.

I hope I have given you enough information.  There is a lot to digest and you may need to seek guidance from a CPA if this is overwhelming. You have a lot at stake here to consider and you need the assurance that everything is done correctly.

[KayaDane]

Thank you so much for your response.  This whole mess has been very stressful and I'm feeling very overwhelmed. Just to clarify: I would also have to submit amended returns for 2021 and 2022, but those returns would contain no changes and would not include form 8938 (as it was not required at the time of filing)?  I assume I would also have to amend my 2022 FBAR and file delinquent FBARs for the years 2021- 2019 (six years back from current tax year)? 

[DaveF1006]

It mentions to file the returns together with any required information returns (e.g., Forms 3520, 3520-A, 5471, 5472, 8938, 926, and 8621) even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return.  According to the instructions, these would be included in the return even those these would be blank, which doesn't make sense.

My suggestion would be just to amend 2022 and include in your detailed statement that the instructions are not completely clear to you why you would need to amend 2020-2021 because it doesn't make sense to submit a blank 8938. In fact, Turbo Tax will not even generate this form unless you had a financial asset to report for that year unless the pension existed during those years and you were a US citizen in those years.

As far as the FBAR does, contact them here and ask them if they can provide you with more clarity and in depth instruction. There is a contact link within this website you can use.                 

[KayaDane]

Yes, the retirement account did exist and I was a US citizen and filed during those years. However, the retirement account did not meet the required threshold for form 8938 to be filed with those return. On it's own it still doesn't. Other money came into play in 2022 that triggered my filing an FBAR, but I didn't realize the retirement account also had to be reported on an FBAR or that it had to be factored into the total for 8938 reporting. I believed it to be exempt, until retirement.

Thank you again. As you can see, I'm in way over my head.

[DaveF1006]

Yes. If the retirement accounts existed before 2022, I would file the amended returns for 2020-2021 to comply with the regulations even though the retirement accounts did not reach the filing thresholds.  This is a rather complicated issue but may be necessary just to comply with the Streamline Filing Compliance Procedure.