FBAR Disclosure – Disclosing Your Foreign Accounts
An FBAR disclosure of your foreign accounts is part of your civic responsibility. As a US citizen or permanent resident, you are expected to report all your worldwide income and the name, country location, and maximum balance of any offshore financial account holdings every year if the holdings exceed $10,000 at any point during the tax year. You are also required to report accounts or financial assets over which you have signatory authority. You risk criminal prosecution and very significant penalties if you fail to comply with the US government’s reporting requirements.
A growing number of foreign banks and foreign tax authorities now cooperate with the US Internal Revenue Service (IRS), Department of Justice (DOJ), and one another in providing information concerning any foreign citizens with accounts in financial institutions within their borders. The reporting requirements are growing so burdensome, many US Expats along with other foreign nationals living in a foreign country are literally being told to take their business elsewhere because banks do not want to share account information with the IRS!
We have to tell you that every year there are fewer and fewer places in the world to hide. See our Tax Samaritan Takeways below for additional information.
The US government has aggressively formed alliances across the world to foster sharing of financial data as many other countries struggle with how to counter tax evasion of their own citizens as well. Tax Samaritan has written extensively about the growing problems of unreported offshore accounts. As more banks and other financial institutions share information through the International Data Exchange Service (IDES), criminal investigations will continue to increase in frequency. IRS Commissioner John Koskinen recently asserted that “…taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order.” Tax Samaritan has told many people seeking assistance that full disclosure only works before Uncle Sam has contacted you.
Foreign Accounts Disclosure
There are many legitimate reasons for having foreign accounts especially if you are or have been a US Expat living in a foreign country. Do you have relatives or family in overseas? Do you have signatory rights for bank accounts holding their assets? Do you own securities or mutual funds that are not investment companies regulated by the US? Call Tax Samaritan for a free consultation to help you determine whether you are at risk. There are serious responsibilities that go along with owning these financial assets. Depending on a variety of filing requirements, owners and signers of foreign accounts must report their accounts annually on the FinCen Form 114 (FBAR Disclosure).
Shocking as it may seem. It does not matter whether or not an account generates taxable income! Part of the reporting practices include an annual disclosure of ownership on a Schedule B which is filed as part of your individual tax return (aka “the 1040”). The little boxes at the bottom of Schedule B play a big part in the disclosure of foreign accounts.
Report Foreign Financial Information
Any US person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR disclosure if the aggregate value of the foreign financial accounts exceeds $10,000 (the taxpayer must aggregate the highest value of each individual account during the calendar year) at any time during the calendar year.
A US person means United States citizens; United States 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. Non-residents of the United States are not included.
The Purpose Of The FBAR Disclosure
The FBAR disclosure form is now officially filed on the FinCen Form 114; you send it to the US Treasury electronically every year by June 30. It is a tool that identifies people who have foreign financial accounts and by not disclosing foreign accounts the US government is of the perspective that you may be evading taxes. The FinCen Form 114 is not an income tax return. Instead of filing it with your income tax return, you file the form electronically through the Treasury Department’s BSA E-Filing System. Tax Samaritan wants to remind you that, unlike your income tax return, there are no filing extensions of time for the FinCen 114!
There are serious consequences for foreign account holders who do not comply with the FBAR disclosure requirements. Those taxpayers who don’t file an FBAR disclosure when required to do so may be subject to civil penalties, criminal penalties or both. Furthermore, the IRS cautions people who try to fix their problem “quietly” without going into one of the IRS programs (the Offshore Voluntary Disclosure Program, OVDP or one of the Streamlined Filing Compliance Procedures ). “Quiet disclosures” that try to go around the tax law will be dealt with severely by tax authorities.
Irrespective of whether your total foreign account balances are large or small, the act of not filing an FBAR disclosure will only make your financial situation worse. Did we mention information sharing on an international scale? Did we mention that there are less and less places to run and hide current funds and your past mistakes? It’s best to address compliance issues and get back in the good graces of Uncle Sam BEFORE he discovers your error and, just like in his well-known portrait, points his far-reaching forefinger out at you!
Tax Samaritan FBAR Disclosure Takeaways
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.