If you have a financial interest in or signature authority over a foreign financial account, the Bank Secrecy Act may require you to report the account yearly. The Act requires that each qualifying taxpayer file a FBAR or Report of Foreign Bank and Financial Accounts. The types of foreign financial accounts to which the Bank Secrecy Act applies this requirement includes a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds.
United States persons are required to file an FBAR if they had a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all of these foreign financial accounts exceeds $10,000 at any time during the calendar year for which the taxpayer is reporting. A “United States person” is defined broadly and includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
The taxpayer must report the account to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). Filers who submit FBARs jointly with spouses or who wish to have a third party preparer file their FBARs on their behalf must use the new FinCEN Report 114a, Record of Authorization to Electronically File FBARs. This new form, 114a, is not submitted when filing an FBAR but, instead, is kept in FBAR records maintained by the filer and the account owner, and must be made available to FinCEN or IRS upon request. The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported.
Certain filing exceptions exist for the following United States persons or foreign financial accounts:
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRAs
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
- Foreign financial accounts maintained on a United States military banking facility.
It is especially important to keep in mind that a reporting obligation may exist for a person holding a foreign financial account even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts and by filing an FBAR. Consult with an experienced tax attorney to answer the questions to the best of your ability and make a proper determination as you will be penalized under the law otherwise.
Civil penalties apply to those required to file an FBAR who fail to properly file a complete and correct FBAR. Such a penalty may not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation. For guidance on circumstances that prevent timely filing of an FBAR, see an experienced tax attorney.
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late. All FBARs are required to be filed electronically. You will need to provide a reason for your late filing.
If you have questions about the timely or delinquent filing of a FBAR — Report of Foreign Bank and Financial Accounts, or questions about your foreign accounts, contact expert tax attorneys and CPAs at www.thorgoodlaw.com For FREE consultation call 212-490-0704.
