Friday, February 21, 2014

An article on Foreign Bank Account Report

In the last couple of years this rather unknown tax form has garnered a lot of interest in the press and media. Form TDF 9022.1 also popularly known as FBAR is a report that the IRS uses to monitor the foreign bank accounts held by US residents overseas.

So why is this form in the limelight? For this we need to step back a bit. Since the commencement of the IRS’s offshore voluntary disclosure programs in 2009, the most significant form in the IRS’s reporting arsenal seems to have been the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts), better known as “FBAR.” Around for decades, FBAR emerged as preeminent only recently. Of course, FBAR isn’t even a form required by the Internal Revenue Code. It is instead a form to report interests required by the Bank Secrecy Act, which is administered by the Financial Crimes Enforcement Network (“FinCEN”).
The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
Salient Features of an FBAR
·          If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing FBAR.
·          United States persons are required to file an FBAR if: -
1.    The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2.    The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
United States person means United States citizens; United States residents; entities, 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.
·         A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. 
·          The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR.
·         The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, on or before June 30th of the year following the calendar year being reported.
·       Exceptions to the FBAR reporting requirements can be found in the FBAR instructions and include certain foreign financial accounts jointly owned by spouses; United States persons included in a consolidated FBAR; Correspondent/nostro accounts etc.
·         Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s requirement to file FBAR. 
·          The penalties for failure to file an FBAR are worse than tax penalties. Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation —and each year you didn’t file is a separate violation.
·     Criminal penalties for FBAR violations are even more frightening, including a fine of $250,000 and 5 years of imprisonment. If the FBAR violation occurs while violating another law (such as tax law, which it often will) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment. Many violent felonies are punished less harshly.

So if you are not sure what to do. The first thing to do is to gather details of the various overseas accounts that you have including all details required as per FBAR. Then you should review the accounts to see if you meet the threshold limit that has been set for reporting purposes. The other thing you should assess is the time period for which you have missed the reporting. Finally based on you overall assessment please consult a CPA or a Tax Attorney who will help you make the decision of whether you fall under the OVDP that is currently being offered by the IRS.