Tis the Season for Foreign Bank Account Reporting – June 04, 2013 by Ray Polantz

June 30 Deadline Approaching

The IRS’ persistent focus on overseas activities continues to highlight the need to comply with all related disclosure requirements. Specifically, it’s time once again to file the Foreign Bank Account Report (FBAR).

Who Must File an FBAR?

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 report certain information to the U.S. Department of Treasury. The information is reported annually by filing Form TD F 90-22.1 no later than June 30th of the following year.

Let’s break this down into more digestible terms:

  • A “U.S. person” is a U.S. citizen or foreign person who is considered a resident alien for U.S. tax purposes; or a U.S. person is also defined for this purpose as a U.S. corporation, partnership, or trust and estate, among others.
  • A “foreign financial account” includes any of the following accounts that are located outside of the United States: bank or securities accounts, insurance and annuity policies with cash value, mutual funds or similar pooled funds.
  • 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/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.

What are the penalties for not filing?

A U.S. person who non-willfully fails to report information on overseas financial accounts can be subject to penalties up to $10,000 per violation. Willful failures can result in penalties of up to $100,000 or 50%of the highest balance in the account, whichever is greater. It is possible that penalties may exceed the account balance. In extreme circumstances criminal penalties could even apply.

What if I have prior year unreported income from undisclosed foreign accounts?

The IRS continues to offer its latest version of the Offshore Voluntary Disclosure Program that will allow certain taxpayers with undisclosed foreign accounts to “come clean” and catch up on prior filings. This program is available to taxpayers who have undisclosed offshore accounts or assets and who did not report the related taxable income.

Those qualifying for the program will be subject to a penalty of 27.5% of the highest aggregate value of the foreign account during the eight full tax years prior to the disclosure. This penalty can be reduced in certain circumstances. In addition, the program requires that participants:

  1. file all original and amended tax returns for up to eight years,
  2. include payment for back taxes and interest for those years, and
  3. pay any accuracy-related and/or delinquency penalties.

This program will be open for an indefinite period until otherwise announced.There is no set deadline to apply.However, the terms of the program could change at any time going forward.

What if I have properly reported all my foreign account income but have not filed the required FBARS?

If you failed to file FBARs but reported all your income from foreign accounts, the IRS has provided that if you file six years of FBARs with a letter explaining that you were not aware of the filing requirement and have paid tax on all related income, there should not be any penalties. However, due to the high stakes involved, taxpayers should make sure that they indeed qualify for this relief.

For more information on FBAR filing or other international issues, contact Ray Polantz at rpolantz@cohencpa.com or a member of your service team.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.