If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (otherwise known as the FBAR Form).
Who Must File The FBAR Form
A U.S. person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR form is the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. A common misconception is that for a bank account to be reportable, the “individual” account balance must exceed $10,000, however that is not true. All accounts must be reported when the aggregate value of all accounts exceeds $10,000.
U.S. Person For Purposes Of The FBAR Form
United States 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.
Definition Of Financial Interest
A U.S. person has a financial interest in a foreign financial account, for purposes of the FBAR form, for which:
- The U.S. person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person, or
- The owner of record or holder of legal title is one of the following:
- An agent, nominee, attorney or a person acting in some other capacity on behalf of the U.S. person with respect to the account
- A corporation in which the U.S. person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock or (ii) more than 50 percent of the voting power of all shares of stock
- A partnership in which the U.S. person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits or (ii) an interest in more than 50 percent of the partnership capital
- A trust of which the U.S. person: (i) is the trust grantor and (ii) has an ownership interest in the trust for U.S. federal tax purposes
- A trust in which the U.S. person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year
- Any other entity in which the U.S. person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets or interest in profits
Definition Of Financial Account
For the FBAR form, a financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value and shares in a mutual fund or similar pooled fund.
What Is A Foreign Financial Account
A foreign financial account is a financial account located outside of the United States. For example, an account maintained with a branch of a United States bank that is physically located outside of the United States is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the United States is not a foreign financial account.
Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.
When To File The FBAR Form
The FBAR form must be filed by June 30 of the year immediately following the calendar year being reported. The June 30 deadline can not be extended under any circumstances and must be filed electronically through FinCen’s BSA E-Filing System by the taxpayer or a professional registered to electronically file on the behalf of a taxpayer.
A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing the FBAR form.
The failure to file the FBAR form can result in significant penalties. A person who is required to file an FBAR form and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed. A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. Willful violations may also be subject to criminal penalties.
U.S. Taxpayers That File The FBAR Form May Also Need to File Form 8938
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on the FBAR. The Form 8938 filing requirement is in addition to the FBAR form filing requirement.
Offshore Voluntary Disclosure Program (OVDP)
On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Program (OVDP) following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR form. Although the program does not have a closing date, the IRS may end the program at any time.
Streamlined Filing Compliance Procedures
On June 18, 2014, the IRS announced the expansion of new Streamlined Filing Compliance Procedures for non-resident U.S. taxpayers who certify that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part and also for certain U.S. taxpayers residing in the United States. The procedures require the filing of delinquent income tax and information returns for the past three years, and the filing of delinquent FBAR Forms for the past six years. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue.
Delinquent FBAR Form Submission
Taxpayers who have not filed a required FBAR form 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 according to the FBAR form instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
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If you are unsure of whether or not you need to file an FBAR and if so what filing procedure is recommended for your situation, you should consult with the qualified FBAR form experts at Tax Samaritan. Click the button below to request a Tax Preparation Quote today to get started with the preparation of your FBAR Form and to request a free 30-minute consultation.
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