A U.S. person, such as a citizen or permanent resident of the United States, or a domestic corporation, partnership, or LLC, that has a financial interest in one or more foreign financial accounts must file a report with the U.S. Treasury annually if at anytime during the year, the sum total of that account or accounts exceeded $10,000 (USD).
The report is also required by anyone that has signature authority over the account, regardless if the money in the account belongs to them or not.
A foreign account is any financial account located outside the United States. This includes accounts held in foreign branches of U.S. banks located abroad.
Financial accounts include checking, savings, demand, brokerage, securities accounts, or other accounts maintained with a financial institution or other institution or person performing the services of a financial institution.
The report must include the location, type of account, account number, and maximum value of the account during the year.
The report is made using Form TD F 90-22 (check for latest revision) and currently sent to the U.S. Treasury in Detroit Michigan. The report is considered filed when it is received, not post marked.
The report must be filed on or before June 30 for foreign accounts aggregating more than $10,000 in the previous calendar year. There is no legal provision specifically granting an extension of time for filing FBARs.
NOTE: For your own protection, always used Certified Mail – Return Receipt Requested when mailing anything to the government.
In addition to the FBAR report, taxpayers are required to keep certain records concerning their foreign accounts for a minimum of five years and have them available for inspection when demanded.
These records include the name on the account, the number on the account, the name and address of the institution where the account is held, and the maximum value of the account for the reporting period (year).
Failure to comply with the FBAR reporting and record keeping requirements can result in severe civil and criminal penalties.
Civil penalties: There are civil penalties for negligence, pattern of negligence, non-willful, and willful violations.
- Generally, the two types of negligence penalties only apply to businesses.
- The negligence penalty will not exceed $500 and is usually imposed upon a business that failed to meet the standards of care for record keeping for that industry.
- The pattern of negligence penalty may be as high as $50,000. This penalty is asserted in egregious cases and is in addition to the $500 penalty. Generally, mitigating factors will not be considered in relation to this penalty.
- The non-willful penalty amount is up to $10,000 and is imposed upon any individual or business that violates or causes any violation of the FBAR reporting or record keeping requirements. Mitigation factors apply to this penalty (such as reasonable cause for the violation and the account balance is properly reported).
- The willful penalty is the greater of $100,000 or 50% of the balance in the account at the time of the violation. The IRS will attempt to assert the willfulness penalty in cases where they believe there was an intentional violation of the FBAR record keeping or reporting requirements. The burden to show willfulness is on the IRS. The IRS generally will rely on circumstantial evidence to establish an intentional FBAR violation (because most people will not confess to an intentional violation), such as:
- Bank or credit card statements related to the foreign accounts.
- The existence of previously filed FBAR forms.
- Checking or not checking the foreign account box on schedule B of the individuals’ tax returns.
- Promotional material from the foreign bank.
- A drop in reported income after the establishment of the foreign account.
Criminal penalties: Generally criminal penalties can include, in addition to civil penalties, a fine of up to $250,000 or imprisonment of up to five years, or both.
The IRS announced on January 9, 2012, that it reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs (2009 & 2011 OVDI).
The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. The IRS stated that the program will be open for an indefinite period until otherwise announced. The IRS indicated that more details about this third Offshore Voluntary Disclosure Program would be forthcoming.
If you have neglected to comply with the FBAR laws, be sure to contact us for a consultation.