FBAR 101
The due date for filing Reports of Foreign Bank and
Financial Accounts (FBAR for short) is around the corner.
When must FBARs be filed?
The due date is June 30th. Since that falls on a Sunday, be
safe and file by Friday, June 28th.
Remember that the FBAR is a technically a Treasury
Department form - TD F 90-22.1. Just because you are on extension for your
income tax return does not give you an extension for FBARs. There are no
extensions. There are some minor exceptions including some business
managers having signature authority over certain type accounts but if you are unsure,
plan on June 30th or seek professional assistance immediately.
Who must file an FBAR?
If you are a U.S.
taxpayer holding more than $10,000 in qualified foreign financial accounts at
any time during the preceding year you must file an FBAR. Those having
signature authority over these accounts must also file FBARs.
Corporations, partnerships, trusts and LLCs must also file
FBARs if organized under the laws of the U.S.
or located in the U.S.
Certain other entities such as real estate investment trusts (REITS) and other
entities organized under U.S.
law or located here may also have to comply.
$10,000 threshold Whether you have one account with
$10,000 or 5 accounts with $2000, if your foreign holdings in the
aggregate exceed the threshold, you must file an FBAR. Even if your
accounts only exceeded $10,000 for a day or two, you must file. We often see
this happen when someone opens an account simply to fund an investment or real
estate purchase and that account only remains open for a few weeks.
Foreign Financial Account.
Included in the definition of qualified accounts are
checking accounts, savings accounts, certificates of deposit, foreign hedge
fund holdings and other deposit accounts. Certain investments, annuities and
even some insurance products with an investment component may qualify.
Foreign commodity accounts that let you hold silver and gold
usually require an FBAR.
Foreign retirement accounts may qualify. There are
country specific treaties that can impact on whether an FBAR is required. Don’t
rely on your bank or retirement plan administrator to provide accurate advice.
I already filed a FATCA form 8938 with the IRS
listing my foreign accounts, do I still need to file an FBAR?
Yes! The reporting requirements for FBARs and FATCA are
different (although there is significant overlap). It is possible to have to
file only one and not the other or both may be required. Filing a FATCA form
with the IRS does not eliminate the need for
FBAR compliance.
What happens if I don’t file an FBAR?
Willful failure to file an FBAR is punishable by 5 years in club
fed. If that doesn’t get your attention, the civil penalties certainly will.
While few people are actually prosecuted, the IRS
does routinely impose the civil penalties for willful failure to file FBARs.
Those penalties are the greater of $100,000 or 50% of the highest account value
for each year and each unreported account. Although the IRS
can look back 8 years, often the IRS will
impose a penalty for just 1 year.
The IRS believes that if
you failed to file an FBAR and you or your tax preparer checked the “no” box on
the Schedule B question asking about foreign accounts, your actions were
“willful.”
Non-willful violations are subject to penalties up to
$10,000 per account per year. In some instances, we have seen the IRS
waive all penalties but be prepared for an audit first.
I didn’t know about FBARs and have not filed them for years.
What should I do?
This is a hidden trap that can really get you in trouble.
Many people are afraid to come forward once they realize they have exposure for
years of missing FBARs. While simply doing nothing and hoping you don’t get
caught may sound tempting, the risks of getting caught are high and getting
worse by the day.
Others believe they can “quietly” file the missing past due
FBARs and not get caught. While that too sounds like a good strategy, the IRS
has publicly stated that they will cull through the FBAR filings in search of
people trying to make these so-called “quiet disclosures.” Those folks are
subject to huge penalties. Making a quiet disclosure buys you some time but it
doesn’t buy any peace of mind.
The IRS is running a tax
amnesty program for those with missing FBARs and unreported foreign accounts.
For people with small accounts or who can prove their actions were not willful,
much better options may be available.
With such high stakes and complex regulations, anyone with
past due FBARs should consult with a tax lawyer specializing in offshore
reporting issues.
Anton Ewing , JD
