The IRS wants to know if a taxpayer has financial interests outside of the United States to ensure the taxpayer is not hiding money for illicit purposes (i.e., money laundering, tax evasion, or funding terrorism). As such, the IRS requires a Report of Foreign Bank and Financial Accounts (FBAR) to be filed with the U.S. Department of Treasury by any United States person if:
1. the United States person has a financial interest in or signatory 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 reported.
A United States person includes U.S. citizens, U.S. residents, business entities created or organized in the U.S., and trusts or estates formed under the laws of the U.S.
A FBAR is not filed with an income tax return. A FBAR is due on or before June 30 of the year following the calendar year being reported and it must be filed electronically online. There is no provision to request an extension to file a FBAR (if the IRS grants an extension to file a taxpayer’s income tax return it DOES NOT extend the time to file an FBAR). Note, if a Form 8938, Statement of Specified Foreign Financial Assets, is required to be filed by a taxpayer because his or her foreign financial assets exceed certain thresholds then the Form 8938 is filed with an income tax return. If required, the Form 8938 does not replace or otherwise affect a taxpayer’s requirement to file a FBAR.
Those who fail to file a proper and complete FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be as much as the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation. A willful violation essentially occurs if a taxpayer knew he or she had a duty to file a FBAR and intentionally did not file the FBAR.
For more information on FBAR reporting you can visit the IRS website here. If you own any foreign asset you should discuss your reporting requirements with an experienced adviser who understands the requirements, procedures, and penalties to ensure you are in compliance.
