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U.S. taxpayers who have financial accounts abroad may be required to disclose these assets to the IRS by filing a Foreign Bank Account Report (FBAR). This filing requirement extends to US citizens residing within the country as well as to Americans living and working abroad.
Given that the failure to comply may draw unwanted attention from the IRS and will invariably lead to the assessment of penalties, taxpayers are encouraged to understand when they might need to file an FBAR and the consequences for noncompliance.
This article explores the FBAR filing requirements including who needs to file and what kind of foreign financial accounts are involved, as well as the records taxpayers must maintain and the penalties associated with a failure to report.
The FBAR, currently known as FInCEN Form 114, arose out of the Bank Secrecy Act of 1970 in an effort to combat tax evasion related to overseas assets. The FBAR itself does not involve the calculation of any tax due but rather involves the reporting of of money and assets abroad. It also requires taxpayers to keep certain records of these interests.
The sort of financial accounts that may be subject to reporting on the FBAR include: CHECK THIS (vs FATCA)
- Assets in a non-U.S. bank account;
- Assets in a foreign branch of a U.S. bank account;
- Foreign brokerage accounts;
- Foreign mutual funds;
- Foreign life insurance;
- Foreign annuity contract;
- Foreign retirement accounts;
- Foreign accounts that you don’t own but control.
An FBAR will be required whether the assets held in the foreign financial institution are cash or noncash.
FBAR Reporting Requirements
A U.S. person must file an FBAR to report a financial interest in, or signature or other authority over, financial accounts in a foreign country if the combined value of all accounts exceeds $10,000 within the calendar year. The reporting requirement is triggered even if the aggregate balance is $10,000 for only a few hours on one single day of the year.
A “U.S. person” includes a citizen, a dual citizen, resident, a resident alien, Green Card holders, a domestic corporation, a domestic partnership, a domestic limited liability company, and a domestic estate or trust.
You will be deemed to have a “financial interest” in an account if you are the owner of record or have legal title. You will be deemed to have “signature authority” over an account if you have some control over the disposition of assets through direct communication with the institution. However, having authority over how a foreign account is invested as opposed to dispersed does not, in itself, require that the taxpayer file an FBAR.
Typically, a foreign financial account includes any account at a financial institution located outside of the U.S., including the U.S. possessions and tribal territories It is irrelevant whether the foreign financial account produced any taxable income (e.g., interest or dividend) during the calendar year.
FBAR: When and How to File
The FBAR constitutes a separate filing from your income tax return and can be submitted electronically through the U.S. Treasury Department’s Financial Crimes and Enforcement Network BSA E-Filing system. The FBAR deadline is April 15 with an automatic extension to October 15 if you miss the initial deadline.
The form requires that you provide pertinent account information. If you wish to have a tax professional submit the form for you, you will need to complete Fin CEN 114a Record of Authorization to Electronically File FBAR to approve their participation. You don’t file the FinCEN 114a but rather complete it and make it available to FinCEN or the IRS upon request.
FBAR: Records to Maintain
Taxpayers are required to keep records for each account that is reported on their FBAR. The pertinent information will include:
- Name on the account;
- Account number;
- Name and address of the foreign bank;
- Type of account; and
- Maximum value during the year.
Acceptable forms of documentation that typically include the above information are bank statements and similar records of account. Taxpayers are required to keep the records for a period of 5 years from the due date of the FBAR. However, when an employee or officer files an FBAR to report signature authority over their employer’s foreign financial account, the employer not the employee is expected to maintain the account records.
FBAR: Penalties for Noncompliance
If you fail to file an FBAR on time or you do not correctly report your foreign accounts, you may be subject to civil and/or criminal penalties.
Even when you didn’t realize you were required to file an FBAR (non-willful failure), civil penalties equivalent to $10,000 per violation or more depending on your account balances at the time of the violation will be assessed.
If it is determined that you purposely avoided the filing (willful failure), the fines can reach $100,000 or 50% of the account’s balance at the time of the violation.
Given that the penalties are significant and can quickly accumulate for non-filers, it is prudent to speak with a tax attorney to determine whether you are required to file an FBAR and how to remedy any noncompliance issues.
Do You Need a Tax Attorney?
A tax attorney can help you determine whether your financial interests abroad require that you file an FBAR and determine to what extent penalties may have already been assessed.
If you were required to file an FBAR but did not, a tax attorney can help you avoid or minimize penalties via participation in an amnesty program whether the Streamlined Compliance Procedures or the Delinquent FBAR Submission Procedures.
The experienced tax attorneys at Segal, Cohen & Landis have helped clients with financial interests, accounts and assets abroad by providing the following services:
- Counsel on possible FBAR and related filing requirements;
- FinCEN Form 114 submissions;
- Assistance with filing compliance and penalty avoidance via participation in an amnesty program.
If you are interested in having a complimentary consultation with one of our partner attorneys regarding your tax matter, please feel free to contact us at 866-505-1872. We would be happy to advise you as to how we can resolve your case and how much it would cost.