Template from taxproc.com. Paste one explanation into the 750-character text box that opens when "Other" is chosen as the late-filing reason on the e-filed FinCEN Form 114 (IRM 4.26.16.3.11). Only for clients who reported all income from the accounts and have had no IRS contact about the FBARs. Keep Part 2 in the file; it is not filed. Delete the notes in gray italics before you send it.
Part 1. The explanation for the FinCEN Form 114 cover page
On the BSA E-Filing cover page, choose the late-filing reason “Other” and paste one explanation below into the text box. The box holds 750 characters, spaces included. Count again after replacing the bracketed text, and delete any sentence that is not true for the client.
Option 1: Inherited account (472 characters as written)
Taxpayer inherited a [type of account] at [bank] in [country] from [relationship] in [year]. Interest from the account was reported on Forms 1040 for [years] and all tax was paid. Taxpayer did not know a separate FinCEN report was required for a foreign account and learned of the requirement from [source, e.g. a new CPA] in [month and year]. The late reports for [years] were filed promptly after learning. No IRS contact has been received about these accounts or years.
Option 2: Accounts opened while living abroad (510 characters as written)
Taxpayer opened accounts at [bank] in [country] while living and working there from [year] to [year], to receive salary and pay local expenses. Interest from the accounts was reported on Forms 1040 for [years] and all tax was paid. Taxpayer regarded them as ordinary local bank accounts and did not know U.S. persons must report foreign accounts to FinCEN. On learning of the requirement from [source] in [month and year], taxpayer filed the late reports for [years] promptly. No IRS contact has been received.
Option 3: Balances each under $10,000 (466 characters as written)
Taxpayer held [number] accounts in [country], none of which exceeded $10,000 on its own in [years]. Taxpayer understood the $10,000 threshold to apply to each account separately and did not know the maximum values are added together. Interest from the accounts was reported on Forms 1040 and all tax was paid. On learning of the aggregate rule from [source] in [month and year], taxpayer filed the late reports for [years] promptly. No IRS contact has been received.
Option 4: Signature authority only (461 characters as written)
Taxpayer is [job title] of [employer], and as part of that job has signature authority over the company's accounts at [bank] in [country], with no financial interest in them and no income from them. Taxpayer did not know that signature authority alone required a personal FBAR. On learning of the requirement from [source] in [month and year], taxpayer filed the late reports for [years] promptly. No IRS contact has been received about these accounts or years.
Option 5: Relied on a return preparer (494 characters as written)
Taxpayer told the return preparer about the [country] accounts each year and gave the preparer the account statements. Interest from the accounts was reported on Forms 1040 for [years] and all tax was paid. The preparer did not advise that a FinCEN report was required, and taxpayer relied on that advice in good faith. Taxpayer learned of the requirement from [new preparer or source] in [month and year], and the late reports for [years] were filed promptly. No IRS contact has been received.
Option 6: Foreign retirement or pension account (501 characters as written)
Taxpayer has a [plan type] retirement account with [plan provider] in [country] from employment there from [year] to [year]. Taxpayer did not understand a retirement plan to be a foreign financial account that had to be reported to FinCEN. [Describe how any income or distributions from the plan were reported on Forms 1040 for the years involved.] Taxpayer learned of the requirement from [source] in [month and year] and filed the late reports for [years] promptly. No IRS contact has been received.
Part 2. File memo (kept in the client file, not filed)
Client: [Name] Prepared by: [Name, credential] Date: [Date]
1. Accounts and years
[For each account: institution, country, account number (last four), type, owner or signer, maximum value in each year, and whether it was over the $10,000 aggregate threshold.]
2. Income reporting
[For each year: where the income from the accounts appears on the filed Form 1040 (schedule and line), and that the tax was paid. If any income was not reported, stop: this is not a late-FBAR-only case.]
3. Schedule B, Part III
[How the foreign account question was answered on each year's return, and why, if the answer is inconsistent with the explanation in Part 1.]
4. Why the FBARs were not filed
[The facts behind the explanation in Part 1, in more detail than 750 characters allows: how the accounts came about, what the client knew, who advised the client and what they were told.]
5. When and how the client learned
[Date and source, and the dates the late reports were filed.]
6. IRS contact
[Confirm no IRS contact about the FBARs and no civil examination or criminal investigation before filing.]
7. Filing record
[For each year: date filed, BSA Identifier from the FinCEN acknowledgment, the late-filing reason selected, and the text entered. Form 114a on file if someone other than the client filed.]
8. Documents kept
- [Account statements showing maximum values]
- [Filed Forms 1040 and Schedule B for each year]
- [Inheritance, employment or plan documents that support the explanation]
- [Correspondence with any prior preparer]
- [FinCEN acknowledgments and copies of each report]
Why there is no cover letter
Practitioners used to a reasonable cause letter for a tax penalty often look for the equivalent for late FBARs. There is nowhere to send one. The IRS FBAR page says the FBAR must be filed electronically through FinCEN’s BSA E-Filing System and is not filed with the tax return, and IRM 4.26.16.3.11 says: “Page one of FinCEN Form 114 should detail the reason the FBAR was not filed timely and a reason selected from the drop-down box. The "Other" selection allows for a 750-character text box explanation.” That box is the reasonable cause statement. The delinquent FBAR guide covers eligibility, how many years to file, the late-filing reason codes and the penalty rules.
How to use the explanations
- Confirm the case fits. All income from the accounts was reported and the tax paid, the IRS has not contacted the client about the FBARs, and there is no civil examination or criminal investigation. If income was left off a return, this is a streamlined or voluntary disclosure case instead.
- Pick the option that matches the facts and replace every bracketed item. The explanations are written in the third person because a preparer usually files them on a Form 114a authorization.
- Count the characters. The online form stops at 750. Each option shows its length as written; dates, names and years add to it.
- Select “Other” as the late-filing reason on each year’s report and paste the same explanation, adjusted for the year if needed.
- Complete the file memo and keep it with the BSA Identifiers from each FinCEN acknowledgment.
Choosing the option
| Client's situation | Option | Check before filing |
|---|---|---|
| Account came from a parent or relative's estate | 1. Inherited account | The year of inheritance and the first year over the threshold |
| Accounts opened during a posting or years living abroad | 2. Accounts opened while living abroad | That interest was reported for every year, including years abroad |
| Several small accounts | 3. Balances each under $10,000 | The aggregate maximum value each year; this is FinCEN’s reason 3 explained |
| Employee with authority over employer accounts | 4. Signature authority only | That the client has no financial interest in the accounts |
| A preparer knew about the accounts and did not advise | 5. Relied on a return preparer | Evidence the preparer was told: organizer, emails, statements provided |
| Foreign employer pension or retirement plan | 6. Foreign retirement or pension account | How the plan was treated on the returns; get advice on the income tax side first |
Whichever option is used, read the filed returns first. IRM 4.26.16.5.5.1 calls checking the wrong box, or no box, on Schedule B “a significant fact to consider” when the IRS looks at willful blindness. An explanation that the client did not know about foreign account reporting reads differently if Schedule B answered the foreign account question “yes” every year.
What the file memo is for
The IRS sees only what is on the report. If it later questions the late FBARs, the memo is where the fuller facts, the income reporting by year and line, the Schedule B answers and the filing record already sit. IRM 4.26.16.3.11 says “A copy of the FBAR should be kept for recordkeeping purposes,” and the BSA Identifier is needed for any later amendment.
Mistakes to avoid
- Stating that all income was reported when it was not. The no-penalty rule depends on it, and the IRS can check the returns.
- Choosing a code with no explanation. “Did not know that I had to file” on its own is a reason, not reasonable cause.
- Leaving bracketed text or a sentence that is not true. Every report carries the explanation as filed.
- Using one explanation for different facts across years, such as an account that was inherited partway through the period.
- Filing after IRS contact. The IRS instruction is for filers it has not contacted about a late FBAR.
Questions practitioners ask
Do I need a cover letter for a delinquent FBAR?
No. FBARs are filed only on FinCEN’s BSA E-Filing System, and the explanation goes on the cover page of each e-filed FinCEN Form 114: choose “Other” as the late-filing reason to open a 750-character text box (IRM 4.26.16.3.11; Publication 5569).
How long can the late FBAR explanation be?
750 characters, spaces included, on the online form. Each explanation in this template shows its length before the bracketed text is filled in.
Is the same explanation used for every year?
Yes, if the facts are the same for every year. Adjust it where they differ, for example the year an account was inherited or opened.
What if the client also left income off the returns?
Then the client cannot say all income was reported, and the case belongs in the streamlined procedures or the Voluntary Disclosure Practice, not a late-FBAR explanation alone.