The global nature of business has led many Americans to have foreign accounts where income is received, invested and managed. While having these accounts is practical there are important responsibilities that accompany such accounts. One of these is the timely reporting and payment of income tax to the Internal Revenue Service (IRS). Over the last few years the IRS has been focused on addressing non-compliant account holders through a series of new reporting programs. As part of the program if a qualifying taxpayer has an interest in or signatory authority over a foreign financial account they may be required to submit a FBAR. For purposes of filing requirements, the definition of a foreign account includes a bank or brokerage account, mutual fund, trust, stock, investment or other foreign financial account that exceeds certain limits. In essence, if you have an account outside the United States then it’s important to determine how and if the FBAR filing requirement will impact you.
FBAR Filing Requirements
Not everyone who has a foreign financial account needs to file a FBAR. Only individuals meeting BOTH the following requirements need to be concerned:
A U.S. person who has financial interest or signatory author over at least financial one financial account located outside the country. (A U.S. person includes citizens, resident, and entities including corporations, partnerships, or LLC’s organized in or under the laws of the United States.)
The total value of the account(s) exceeds $10,000 at any time throughout the year regardless of duration.
It’s important to note that there are some important exceptions to the rules. Below we have provided a summary of the most common, including:
U.S. persons included in a consolidated FBAR
Foreign financial accounts owned by a governmental entity
Owners/Beneficiaries of U.S. IRAs
Foreign financial accounts maintained in a U.S. military banking facility.
Filing & Penalties
There are complex filing rules in place when determining whether a FBAR needs to be filed. The IRS cautions taxpayers that in some cases taxpayers with foreign accounts that generate no income may still be required to file. It’s important to note that the FBAR is a calendar year end report with a filing deadline of June 30th. All FBARs need to be filed electronically through FINCEN’s BSA E-Filing System and there are no extensions currently being granted.
The penalty for not properly completing and submitting a FBAR may be up to $10,000 per nonwillfull violation. The penalty for those taxpayers that willfully violated FBAR filing regulations is significantly greater at$100,000 per violation or a fee of 50% of the account balance at the time of the violation. Remember while the penalties are intense there are several compliance programs that allow taxpayers to achieve compliance without incurring such heavy penalties. These include the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures.
The rules and regulations for filing a FBAR have changed many times. Beyond this there are several compliance programs in effect that allow delinquent taxpayers to come into compliance with limited penalties. If you think you may have a FBAR filing responsibility, then it’s important to work with an advisor that understands the process and can lead you in the right direction. For additional information on FBAR filings, please contact BCG & Company at 330-864-6661, or click here to email us. We look forward to speaking with you soon.