IRS problems aren't as complicated as they look once you see the structure. I'm attorney Darrin Mish. I've represented taxpayers before the IRS for three decades — in Florida, Colorado, Texas, and internationally. Here's the plain-English breakdown.
The Misunderstanding That Costs People Money
“My foreign account never earned any income. I don’t have to report it, right?” Wrong. The FBAR is an information return, not a tax return. It exists whether the account generated income or not. The reporting obligation turns on whether the account existed and whether the aggregate balance exceeded $10,000, never on whether interest accrued.
This is one of the most common FBAR misunderstandings I see. Taxpayers think no income means no reporting. The result is years of unfiled FBARs accumulating penalty exposure on accounts that did not produce a dollar of taxable activity.
What FBAR Actually Reports
FBAR (FinCEN Form 114) reports the existence of foreign accounts. The form asks for the maximum value during the year, the financial institution, the account number, and basic identifying information. There is no income field. There is no tax calculation. The form does not report what the account earned because that is not what it tracks.
Income from the account – interest, dividends, capital gains – goes on the tax return. Schedule B Part III asks about foreign accounts. Form 8938 may also apply under FATCA. Form 1040 reports the income itself on whatever schedule applies.
These are parallel obligations. The income reporting and the existence reporting are separate. Missing the income obligation creates one set of problems. Missing the existence obligation creates another.
Why Congress Designed It This Way
The FBAR rules were enacted as part of the Bank Secrecy Act of 1970, decades before FATCA, decades before automatic information sharing between foreign banks and the IRS. Congress wanted a tool to track U.S. ownership of foreign accounts even when those accounts did not generate U.S.-taxable income.
The point was visibility, not taxation. The IRS wanted to know which U.S. persons had foreign accounts so it could investigate when something looked off. A dormant savings account in a foreign bank generates no income but still creates the visibility Congress wanted, and still requires the report.
The Common Scenarios That Trip People Up
Dormant accounts. The taxpayer opened a foreign bank account years ago, deposited some money, and forgot about it. The account sits there generating nothing. Still reportable if the balance exceeded $10,000 at any point.
Non-interest-bearing accounts. Checking accounts, current accounts, money held in foreign currency without an interest feature. Still reportable.
Pension and retirement accounts. A foreign 401(k) equivalent, a foreign superannuation, an RRSP. Income deferred under treaty or domestic rules. Still reportable, often under additional forms beyond FBAR.
Signature authority accounts. The taxpayer signs on a parent’s foreign account, or an employer’s foreign account, without any beneficial interest. Signature authority alone triggers FBAR if the account balance exceeded $10,000.
Joint accounts. The taxpayer is a joint owner on a foreign account held primarily by a non-U.S. spouse or family member. The U.S. person’s reporting obligation runs on the full account balance, not just their fractional interest.
The Threshold Trap
Some taxpayers know about FBAR but believe they fall below the threshold. They do not.
The $10,000 threshold is aggregate, not per account. Five accounts at $3,000 each total $15,000, threshold exceeded. The threshold also counts the highest balance during the year, not the year-end balance. An account briefly funded to $25,000 and immediately drawn down to $1,000 still exceeded the threshold.
The threshold is also calculated based on what the U.S. person has signature authority over or beneficial interest in, not just what they own outright. Signature authority on an employer account that holds millions still requires the report from the signatory.
What Happens When You Realize the Mistake
If the unfiled FBARs cover years where the account had no income, the Delinquent FBAR Submission Procedures often apply. Under this program, a taxpayer who failed to file FBARs and has no unreported income from those accounts can file the back forms with a brief explanation and the IRS will generally accept them without penalty.
The key word is “generally.” The IRS retains discretion. The submission must affirmatively state that the taxpayer is non-willful and that all required income from the accounts has been reported on tax returns. If those facts are accurate and documented, the penalty exposure is minimal.
If there is any unreported income, even small amounts, the Delinquent FBAR Submission Procedures do not apply. Streamlined or Voluntary Disclosure becomes the path.
The Risk of Doing Nothing
The instinct to leave a no-income account alone is understandable but wrong. Three reasons.
First, FBAR statute of limitations is six years. Each year of non-filing remains exposed.
Second, automatic FATCA reporting by foreign banks means the IRS often knows about the account before the taxpayer addresses it. Coming forward voluntarily before the IRS makes first contact is the difference between Delinquent FBAR Submission and a non-willful penalty assessment.
Third, the account may not stay dormant. A future transaction, a future inheritance, a future closure transferring funds back to the U.S. – any activity that draws attention also draws scrutiny to the history of non-filing.
After 32 Years of Foreign Account Cases
The taxpayers who address dormant no-income accounts proactively pay nothing or close to nothing. The taxpayers who wait until the IRS asks them about the accounts pay full penalty under whatever willfulness theory the file supports.
The cost difference is not subtle. Voluntary disclosure of a dormant $50,000 account through the Delinquent FBAR Submission Procedures typically costs the legal fees and nothing more. Involuntary penalty assessment on the same account can run six figures depending on years involved and willfulness analysis.
Get Help Now
If you have foreign accounts that never earned income and you have not been filing FBARs, the path forward is usually simple, if you act before the IRS does. Contact the Law Offices of Darrin T. Mish, P.A. at (813) 229-7100 for a free consultation. We file Delinquent FBAR Submissions correctly and we know when they will be accepted.