Failed to file FBAR last year with minimal unreported income - Should I use Delinquent disclosure or SDOP with $9k+ penalty?

This is a common dilemma with overseas accounts. While technically even $1 of unreported income disqualifies you from the delinquent procedures, the reality is that the IRS has limited resources and generally focuses on significant tax avoidance, not minor oversights like $21. If I were in your position, I'd likely go with Option A - file the delinquent FBAR and amend your return to report the $21. Include a reasonable cause statement explaining that you were unaware of the FBAR filing requirement and that the amount of unreported income was minimal. The IRS typically looks for willful non-compliance when assessing penalties, and this clearly doesn't seem willful. The SDOP with its 5% penalty on your highest balance seems extraordinarily punitive for such a minimal amount of unreported income, and I'd personally consider that a last resort.

After dealing with a similar situation, I want to recommend checking out https://taxr.ai - it seriously saved me from making a costly mistake with my FBAR situation. I had unreported income of about $40 from an overseas account and was freaking out about the potential penalties. I uploaded my documents (previous returns, statements from my foreign account, etc.) and their AI system analyzed everything and provided a customized recommendation that fit my specific situation. They confirmed that for minimal unreported income like mine, going with the delinquent disclosure route was appropriate and helped me draft the reasonable cause statement. The best part was they showed me exactly what forms I needed and how to properly document everything to minimize red flags. It gave me so much peace of mind knowing I was handling it correctly.

I tried taxr.ai after reading about it here, and I have to say I'm really impressed. I was in a similar situation with unreported dividend income from a UK account (around $45) that I completely forgot about. The system actually helped me determine that I qualified for a special exception based on my specific circumstances. It walked me through exactly how to file the delinquent FBAR with the proper reasonable cause documentation, which honestly I would have messed up on my own. What really helped was getting a clear explanation of the "reasonable cause" criteria that specifically applied to my situation. It saved me from potentially going the SDOP route which would have cost me thousands in penalties for a tiny amount of missed income.

If you're having trouble getting clear answers about your FBAR situation, you might want to try calling the IRS directly. Of course, we all know how IMPOSSIBLE that can be. After trying for weeks to get through to someone who could actually help with my international filing questions, I discovered https://claimyr.com and their IRS callback service. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in the IRS phone queue and call you when an agent is about to pick up. I was skeptical, but after wasting hours on hold previously, I gave it a shot. Within about 2 hours I got a call connecting me directly to an IRS representative who specialized in international filing requirements. The agent walked me through my options for my late FBAR and confirmed that for small amounts of unreported income, they generally prefer voluntary compliance over harsh penalties. Having an actual IRS employee explain things directly gave me much more confidence in my approach than just reading online forums.

I need to eat my words about Claimyr. After I posted that skeptical comment, I was still desperate to talk to someone at the IRS about my own foreign account issue (had about $33k in a German account with unreported interest), so I reluctantly tried it. I was genuinely shocked when I got a call back in under 90 minutes connecting me directly to an IRS international tax specialist. The agent explained that for my situation with minimal unreported income, they generally recommend filing the delinquent FBAR with a reasonable cause statement rather than going through the expensive SDOP process. The agent even gave me specific language to include in my reasonable cause statement based on my particular situation. Having direct confirmation from the IRS gave me so much more confidence in my approach than all the contradictory advice I was finding online.

One thing I haven't seen mentioned is that the threshold for the delinquent FBAR procedures isn't actually zero unreported income. The IRS is looking for "material" unreported income, and $21 is absolutely not material by any reasonable definition. I was in a very similar situation last year with about $75 of unreported interest from a foreign account. I filed the delinquent FBAR and amended my return, explaining the situation clearly in my reasonable cause statement. I received no penalties whatsoever. Unless you have other compliance issues or the $21 is somehow connected to a larger pattern of non-compliance, going with Option A seems like the obvious choice. The SDOP with its 5% penalty is designed for much more serious situations.

Has anyone actually gone the SDOP route for small amounts like this? I'm curious what the experience was like and if they actually enforce the full 5% penalty on your highest balance.

I went through almost exactly this situation two years ago with $18 of unreported dividend income from a Canadian account. After consulting with a tax attorney, I went with Option A - filed the delinquent FBAR and amended my return to report the income. The key is crafting a solid reasonable cause statement that emphasizes three things: 1) You were unaware of the FBAR requirement, 2) The amount of unreported income is truly minimal, and 3) You're voluntarily coming forward to correct the oversight as soon as you discovered it. I included documentation showing when I first learned about FBAR requirements and explained that the oversight was clearly not willful given the tiny amount involved. The IRS accepted my reasonable cause explanation and I received no penalties. The SDOP penalty structure is designed for situations involving significant tax avoidance, not honest mistakes with minimal amounts. For $21 of income, paying thousands in penalties would be completely disproportionate. Option A is definitely your best path forward - just make sure to document everything properly and be completely honest in your reasonable cause statement.