Time to File Your Foreign Bank Account Report – June 11, 2015 by Ray Polantz

It’s that time of year again, where I remind taxpayers holding foreign financial accounts that they must comply with the annual disclosure requirement. 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 by June 30th. To do so you must electronically file a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The form can only be electronically filed through the BSA e-Filing System website or through certain tax preparation software used by most accounting firms.

Generally, any U.S. person with a financial interest in, or signature or other authority over, any foreign financial accounts with an aggregate value exceeding $10,000 at any time during the year must file an FBAR with the U.S. Department of Treasury.

Below are some key definitions:

  • “U.S. person” means U.S. citizens, U.S. residents and U.S. entities, including but not limited to corporations, partnerships or limited liability companies.
  • A “financial account” is broadly defined to include more than just a bank account. It also includes a securities, brokerage, savings, demand, checking, deposit or other account maintained with a financial institution.
  • A “foreign financial account” is any financial account located outside of the U.S.
  • A U.S. person has a “financial interest” in an account if that U.S. person is the owner of record of the foreign account. U.S. persons are also deemed to own the foreign accounts of majority-owned entities (both foreign and domestic).
  • An individual has “signature or other authority” if he or she has authority to control funds or other assets in the financial account by direct communication to the person maintaining the account. For a company that has a foreign account, the controller or CFO often has this authority.

A U.S. person who non-willfully fails to report information on foreign accounts can be subject to civil penalties up to $10,000 per violation. Willful failures to report can result in penalties of up to the greater of $100,000 or 50% of the highest balance in the account at the time of violation. Willful violators could also be subject to criminal penalties.

It’s important to note that the Foreign Account Tax Compliance Act (FATCA) adds another filing requirement for certain taxpayers living in the U.S. who hold foreign financial assets with an aggregate value exceeding $50,000 on the last day of the tax year or more than $75,000 at any time during the year ($100,000 and $150,000, respectively, for married filing jointly). These individuals must report certain information about those assets on Form 8938 that must be attached to the taxpayer’s personal income tax return. Failure to do so will result in a penalty of $10,000 (and penalties up to $50,000 for continued failures). Currently this requirement applies only to individual taxpayers; however, the IRS anticipates issuing future regulations that may require domestic entities to file.

For those with unreported income from a foreign account fearful of the penalties, there is some relief available. The IRS continues to offer its latest version of the Offshore Voluntary Disclosure Program (OVDP), which offers people with unreported taxable income from offshore financial accounts an opportunity to resolve their tax and information reporting obligations, including the FBAR. Although the program does not have an official end date, the IRS could stop the program at any time.

In addition to the OVDP, the IRS offers another option to U.S. taxpayers with undisclosed foreign financial assets called Streamlined Offshore Procedures, which offer a lower penalty for taxpayers who were not acting willfully.

Bottom line? If you hold foreign financial accounts, talk with your advisor now to understand your filing requirements and, if you are in fact required to file, do so by the June 30th deadline.

We want to hear from you! We encourage you to comment below on this blog post, share it on social media or contact Ray Polantz at rpolantz@cohencpa.com or a member of your service team for further discussion.

This communication is published by Cohen & Company for our clients and professional associates. Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this publication should be taken only after a detailed review of the specific facts and circumstances.