Posted in: Blog, Posted On: 17-02-2014, Posted By: Steven Schroeder

Over the past few years the Internal Revenue Service has been spending a tremendous amount of time and resources monitoring and enforcing the filing requirements on foreign bank and financial accounts.  Many have heard the term FBAR, which stands for Report of Foreign Bank and Financial Accounts, but few people understand who is required to file and under what circumstances.

First, let me start by saying that in September of 2013 the form to Report Foreign Bank and Financial Accounts changed.  FinCEN Form 114 now supersedes the old Form TD F 90-22.1 and is now required to be filed online.

Second, the FBAR report is a calendar year report, i.e. January 1 through December 31st, and must be filed on or before June 30th of the year following the calendar year being reported.  For example, the 2013 calendar year FBAR report must be filed on or before June 30, 2014.

So who must file?  The simple answer is any United States person who had a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year being reported.

A U.S. person includes U.S. citizens; U.S. residents; entities and trusts created in the United States or formed under the laws of the United States. 

It is important to note that you may have a reporting obligation even if the account generates no taxable income.  The reporting obligation is met by indicating on the personal or entity income tax return that you have an interest or signing authority over a foreign bank account AND filing the FBAR report.  The mere indication on the income tax return that you have a foreign account is not enough.    

Failure to file the FBAR or filing the FBAR late can result in severe penalties.  A person who is required to file an FBAR but fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation.  This is in the case of a nonwilful violation.  However, where the IRS believes the taxpayers actions constitute a wilful violation the penalties may be the greater of $100,000 or 50% of the balance in the account at the time of the violation.  The penalty is for each violation.  For example, if a taxpayer did not file the FBAR for two (2) years the penalty could be 50% of the account value for year one, and another 50% of the account value for year two.

The area of Foreign Bank Account Reporting is quite complicated.  Should you have a filing requirement or are uncertain whether you have a filing requirement you should seek legal advice from a tax attorney who has extensive knowledge of the FBAR requirements.

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