U.S. citizens and residents and certain nonresidents who have a financial interest in or signature or other authority over any “financial accounts” in a foreign country are required to make a separate filing if the aggregate value of these accounts exceeded $10,000 at any time during a calendar year.
The filing requirements apply to any “United States person”, which is defined as those who fit into one of the following categories:
A Citizen of the United States
Green Card holders
Foreign persons residing in the US for extended periods of time (ie. H-1B, L-1, TN and other Visa holders)
Individuals that have signing authority over a non-US account (if such person can control the disposition of money or other property)
Filing requirements also apply to those with direct or indirect control over a foreign or domestic entity with foreign financial accounts, even if the taxpayer does not have foreign financial accounts of its own.
Foreign “financial accounts” include a wide variety of items, such as:
Bank accounts (savings, demand, checking, deposit or any other account maintained with a financial institution)
Securities or brokerage accounts
Debit and Prepaid Credit Cards maintained with a financial institution
Certain types of Annuities or pension accounts
Interests in partnerships, trusts or other pass-through entities having foreign accounts
Insurance Policy with cash surrender value
Because persons with a financial interest and persons with signature authority are required to submit filings, a single account can require multiple filings. For example, a corporate-owned foreign account would require filings by the corporation and by the individual corporate officers with signature authority.
These filings must be made by June 30th of the following calendar year, and the time for filing is not extended by a tax return extension. There are severe civil and criminal penalties for non-compliance of these filing requirements. Even an inadvertent failure or incomplete filing can result in a $10,000 civil penalty, and the IRS has begun enforcing these penalties.
The mechanism for reporting the FBAR information is filing Form TD F 90-22.1 (also known as an FBAR). The form is required when the sum of the highest values in all of a taxpayer’s financial accounts exceeds $10,000 during the calendar year.
It should be noted that when determining if one should file the FBAR, all foreign (non-US) financial accounts must be aggregated using their highest value during the calendar year. A common misconception is that if an account is under $10,000, no filing is required and this may not necessarily be the case. Additionally, filings are required even if the foreign account does not produce income.
While FBAR reporting requirements have been in place since 1970, significant revisions to the form (in 2008) and associated penalties for non-compliance have garnered the attention of many taxpayers and practitioners over the last few years. This is a direct result of the Internal Revenue Service (IRS) determining that there is a significant amount of non-compliance in this area and they have therefore indicated that they will be stepping up enforcement of potentially considerable penalties related to non-filing.
Please contact Hubert Pereira, CPA. We at Pereira and Company are poised to assist you in assessing your FBAR filing requirements, assimilating the necessary information and preparing your current and past due FBARs. We also have considerable experience in helping taxpayer’s that have not been historically compliant to navigate the IRS guidelines and minimize their potential penalties through the various IRS Voluntary Disclosure Programs that have been available.
As IRS Commissioner Doug Shulman has stated “for taxpayers who continue to hide their head in the sand, the situation will only become more dire. They should come forward now under our Voluntary Disclosure Practice and get right with the government”.