Foreign Bank Account Reporting
Linda Sanborn, Senior Manager, and Ann Stephan, Senior, Tax Practice
In today’s global economy, the IRS continues to collect more information and pursue people internationally to prevent taxpayers from abusing the system and hiding income offshore or through offshore nominee entities. Are you a U.S. citizen or resident with investment or business activities in a foreign country? Are you a U.S. citizen or resident with an interest in, or connection to, a foreign bank account or other foreign asset? If you answered yes to either of these questions, you should ask yourself whether you are meeting all the U.S. tax reporting obligations by filing the foreign bank account report (FBAR).
Who must file an FBAR
U.S. citizens, residents and certain other persons (this would include all U.S. organized entities such as Corporations, Partnerships, and trusts) having a financial interest in, or signature authority over, a foreign financial account for which the aggregate value of all foreign accounts exceed $10,000 at any time during the year are required to file an FBAR, or Financial Crimes Enforcement Network (FinCEN) Form 114. The FBAR filing requirement is not limited to foreign accounts containing cash; it also includes foreign-issued life insurance with cash surrender value, foreign stock or securities held in a foreign financial institution outside of the United States, foreign mutual funds and unit trust accounts.
Financial interest is defined as the owner of record or holder of legal title or a sufficient interest (50 percent or more) in the entity that is the owner of record or holder of legal title.
Signature authority is defined as the authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.
Penalties for not filing
The civil penalties for failing to file FBAR are severe. If the failure to file is non-willful, the penalty is up to $10,000; if willful, the penalty is up to the greater of $100,000 or 50 percent of the account balances. Criminal penalties may also apply.
Due date and where to file
The FBAR is a calendar year report and must be filed by April 15 of the year following the calendar year being reported, and an automatic six-month automatic extension is available to October 15.
The Offshore Voluntary Disclosure Program (OVDP)
A voluntary disclosure program is available for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a failure to report foreign financials assets.
If you would like to discuss these matters further, please call Stuart Lyons or your BNN advisor at 1.800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.