US taxpayers with a foreign financial account with $10,000 or more at any point in a calendar year have a reporting requirement with the US.
31 USC Sections 5311 – 5332 provide that “[a] United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report: a financial interest in or signature or other authority over at least one financial account located outside the United States if the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.” A foreign financial account generally means any account at a financial institution located outside the US. These provision were passed in the 1970s by the US in an effort to detect and prevent money laundering. Today, these laws are generally referred to as Bank Secrecy Act (BSA). The BSA has several reporting and detection mechanisms, including the Foreign Bank Account Report (FBAR).
What are the FBAR filing requirements?
The FBAR must be filed on or before June 30 each year for the previous calendar year. Extensions of time to file federal income tax returns or information returns do not extend the time for filing FBARs. While the FBARs and tax returns are filed on the same day, that does not mean they are filed together. The FBAR is filed electronically on the BSA eFiling system: https://bsaefiling.fincen.treas.gov/main.html. It may be possible to file your FBAR as a paper copy but that requires a special dispensation from FinCEN.
The IRS FBAR instructions require that records be kept on every foreign account reported on an FBAR. These records should include the following information:
- Name on the account,
- Account number,
- Name and address of the foreign bank,
- Type of account, and
- Maximum value during the year.
There is no specified requirement for the document this data must come from. It can be bank statements or even the FBAR filed, as long as the records are complete. You are required to retain these records for five years from the due date of the FBAR.
FBAR Penalties for failing to file for foreign accounts.
Civil FBAR penalties have varying upper limits, but no floor. The examiner has discretion in determining the amount of the penalty. Penalties are applied based on whether non-compliance was negligent or willful, or somewhere in between. The IRS been known to apply penalties of up to 100% of the high balance of the account depending on the circumstances. Generally penalties are closer to 15% of the high balance.
THEVOZ Attorneys can help you accurately file your FBAR in a way that is compliant with the law. More importantly, we will work with you if you discover you have failed to adequately comply with FBAR and/or have failed to file income taxes for a period of time. It is not uncommon to be non-compliant for both FBAR and taxes, but we can help you get compliant through procedures that made available by the IRS for taxpayers found to be non-willful in their non-compliance. Willful violators also have an IRS procedure available that THEVOZ can assist you with, but it is much more complicated and arduous. In addition, taxpayers that may have criminal tax exposure may utilize certain voluntary disclosure procedures discussed here.