Reporting Requirements for Foreign Financial Accounts
In today's global economy it is very common for individuals, companies, partnerships,
trusts or estates to have one or more foreign financial accounts. A foreign financial
account broadly includes any type of a bank account, securities account, mutual fund
account, unit trust account, securities derivatives account or other financial
instruments account that is located outside of the United States.
Every U.S. person, as defined below, that has any type of a direct or indirect
interest in or signature authority or control over any type of a foreign financial
account has to file Form TD F 90-22.1 by June 30th to avoid penalties starting at
$10,000 as mentioned below. To illustrate various reporting requirements, several
simplified examples are set forth below.
- Carmen is a U.S. citizen who has a mutual fund account in the Bahamas with a
value of $6,200 and a savings account with a value of $4,100 in the Cayman Islands.
Since the aggregate value of the two accounts exceeded $10,000 at some point in the
previous year, Carmen is required to file two treasury forms to report his direct
interest in the two foreign financial accounts.
- John is a U.S. citizen who directly owns two foreign subsidiaries that have three
checking accounts with values of $3,500, $2,500 and $4,300 respectively. Since the
aggregate value of all three accounts exceeded $10,000 at some point in the previous
year, John is required to file three treasury forms to report the indirect interest
in the three foreign financial accounts.
- A U.S. citizen who is a director or officer of a foreign company or foreign
partnership may be deemed to have control over the foreign corporation's or foreign
partnership's foreign financial accounts and in such a situation would have to file
the Treasury form(s) if an exception did not apply.
- A U.S. Corporation (an "S" or a "C") has a branch in a foreign country. The
U.S. Corporation has a payroll account at a foreign bank and a foreign checking
account with values of $20,000 and $2,000 during the year. Since the aggregate
value of the two accounts exceeded $10,000 at some point in the previous year, the
U.S. Corporation is the U.S. person who is required to file two treasury forms to
report its direct interest in the two foreign financial accounts.
The "Report of Foreign Bank and Financial Accounts" has to be filed by June 30th with
the Department of the Treasury, P.O. Box 32621, Detroit , MI 48232-0621 to avoid
civil and criminal penalties. Please note there is non-willful failure to file
penalty of $10,000 that can be assessed for each foreign financial account that
is not reported. The penalty for a willful failure to file the Treasury Department
form starts at $100,000.
Reporting for all foreign financial accounts is required if at any time during the
preceding year there was an aggregate value in excess of $10,000 in the U.S. person's
directly and indirectly owned foreign financial accounts.
The term "U.S. person" is all inclusive and refers to a U.S. citizen, any U.S.
corporation, a U.S. resident alien, a U.S. partnership, a U.S. green card holder,
a U.S. trust, a U.S. estate and certain check-the-box entities owned by a U.S. person.
Indirect ownership of a foreign financial account typically arises when a U.S. person:
a) owns directly or indirectly through attribution more than 50 percent of a foreign
subsidiary, b) has more than a 50 percent profits interest in a foreign partnership,
c) has a more than 50 percent ownership of a foreign check-the-box entity, d)
receives more than 50 percent of the income of a foreign trust, e) is the
beneficiary of more than 50 percent of the assets of a foreign trust, f) etc.
Because the penalties for failure to file can be draconian, if there are any questions
about whether a form should be filed, we suggest that you consider the conservative
approach and file the form to report the financial account.
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