If you have a financial interest in, or signature authority over, a foreign financial account, the Bank Secrecy Act may require you to file a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBARs) by June 30th. Below are 10 key areas to understand about filing requirements.
1. 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 file an FBAR.
2. U.S. Person
A U.S. person is any U.S. citizen, U.S. resident or U.S. entity, 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.
3. Financial Interest
A U.S. person has a financial interest in a foreign financial account 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
4. Financial Account
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 financial account also includes a commodity futures or options account, an insurance policy with a cash surrender value, and shares in a mutual fund or similar pooled investment.
5. What is a Foreign Financial Account?
A foreign financial account is any financial account located outside of the U.S. An account maintained with a branch of a U.S. bank that is physically located outside of the United States is considered a foreign account. An account maintained with a branch of a foreign bank that is physically located in the United States is not considered a foreign account.
6. FBAR Penalties
A U.S. person who fails to report information on foreign accounts can be subject to civil penalties up to $10,000 per violation. Generally, if there is reasonable cause for the failure, and the account is properly reported, no penalty will be imposed. 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.
7. Form 8938 May Also Be Required
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with the taxpayer’s income tax return. The Form 8938 filing requirement is in addition to, not in lieu of, the FBAR filing requirement.
8.Offshore Voluntary Disclosure Program
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 nonresident U.S. taxpayers with undisclosed foreign financial assets called Streamlined Offshore Procedures, which offer a lower penalty for taxpayers who were not acting willfully.
9.Delinquent FBAR 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.
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.
10.When and How to File
FBARs for the 2015 calendar year must be filed by June 30, 2016. No extensions are available. Beginning with the 2016 calendar year FBARs, the due date for reporting will change from June 30th to April 15th, matching the due date for filing individual income tax returns.
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.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.