Do You Have a Foreign Financial Account?
If you have authority over or own a foreign financial account, including a brokerage account, unit trust, mutual fund, bank account or other types of financial accounts, then you may be required to report the account yearly to the IRS. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR), if
1. The value of the account exceeds $10,000 at any time during the calendar year, and
2. The person has financial interest in, signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country.
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.
A United States person is not prohibited from owning foreign accounts. The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.
What is an FBAR?
Who must file an FBAR?
When is the FBAR due?
Where are FBAR forms available?
What are the exceptions to the FBAR filing requirement?
How do foreign account holders report their accounts to the IRS?
Where do account holders file the FBAR?
How long should account holders retain records of the foreign accounts?
What is a United States person?
Would a foreign athlete or entertainer that occasionally visits the U.S. in order to compete or perform in an event, be considered a United States person for FBAR purposes?
What is a foreign country?
What is a financial account?
Does more than one form need to be filed for a husband and wife owning a joint account?
What constitutes signature or other authority over an account?
What does “maximum value of account” mean (for Box 15 on the FBAR)?
Is an FBAR required if the account generates neither interest nor dividend income?
How does an FBAR filer amend a previously filed FBAR?
What is the statute of limitations for assessing civil penalties for violations of the FBAR requirements?
What happens if an account holder is required to file an FBAR and fails to do so?
An American citizen, X, gives a person who is a citizen or resident of the U.S. power of attorney to X’s Canadian bank accounts. X files an FBAR form annually. Does the power of attorney also need to file an FBAR?
A fiduciary who is a U.S. person has control as a trustee for an IRA with a foreign account. Should an FBAR be filed?
Does the term “other authority over a financial account” mean that a person, who has the power to direct how an account is invested, but who cannot make disbursements to the accounts, has to file an FBAR?
Must a U.S. person file an FBAR on a Eurodollar account in the Cayman Islands?
A N.Y. corporation owns a foreign company that has foreign accounts. The corporation will file an FBAR for the foreign company’s accounts. Do the primary owners of the U.S. Company also have to file?
A company has over 25 foreign accounts. What should they enter in Part ll of the FBAR?
A person is a non-resident alien and only visits the United States to manage his personal interests, such as rental property. Does that person have to file an FBAR?
Reporting and Filing Information
A person who holds a foreign account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on Form 1040 Schedule B, and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder’s reporting obligation.
A foreign account holder must mail the Form TD F 90-22.1 on or before June 30 of the following year to:
U.S. Department of the Treasury P.O. Box 32621 Detroit, MI 48232-0621.
The FBAR is not to be filed with the filer’s Federal income tax return.
The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing the FBAR.
Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.
Exceptions to the Reporting Requirement
There are exceptions to the reporting requirement. These exceptions include:
1. Accounts in U.S. military banking facilities operated by a United States financial institution to serve U.S. Government installations abroad are not considered to be accounts in a foreign country for purposes of the reporting requirement.
2. An officer or employee of a bank that is subject to the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation, is not required to report having signature or other authority over a foreign account if the officer or employee has no personal interest in the account.
3. An officer or employee of a domestic corporation whose equity securities are listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record, is not required to report having signature or other authority over a foreign account if the person has no personal financial interest in the account, and the officer or employee has been advised in writing by the chief financial officer of the corporation that the corporation has filed a current report that includes the foreign account.
The IRS has launched a “tax amnesty” for those who turn themselves in within the next 5 months. It is critical that clients be made aware of this program, and be counseled on whether it is in their best interest to participate. The issues are complex, and require a balancing of a number of financial, tax and criminal considerations including the non-applicability of the federal authorized tax practitioner privilege. The “amnesty” will expire on September 22, 2009, so time is of the essence. Current year FBARs are due June 30th.