International
Taxes –In a global economy,
many people in the United States have foreign financial accounts. The law
requires owners of foreign financial accounts to report their accounts to the U.S
Treasury Department, even if the accounts don’t generate any taxable income.
Account owners need to report accounts by the April due date following the
calendar year that they own a foreign financial account.
The U.S. government requires individuals to report foreign
financial accounts because foreign financial institutions may not be subject to
the same reporting requirements as domestic ones.
Who
needs to report
Since 1970, the Bank Secrecy Act requires U.S. persons who
own a foreign bank account, brokerage account, mutual fund, unit trust or other
financial account to file a Report of Foreign Bank and Financial Accounts
(FBAR) if they have:
1.
Financial interest
in, signature authority or other authority over one or more accounts in a
foreign country, and
2.
The aggregate value
of all foreign financial accounts exceeds $10,000 at any time during the
calendar year.
A U.S. person is a citizen or resident of the United States
or any domestic legal entity such as a partnership, corporation, limited
liability company, estate or trust.
A foreign country includes any area outside the United States
or outside these U.S. territories and possessions:
·
Northern Mariana
Islands,
·
District of
Columbia,
·
American Samoa,
·
Guam,
·
Puerto Rico,
·
United States Virgin
Islands,
·
Trust Territories of
the Pacific Islands and
·
Indian lands, as
defined in the Indian Gaming Regulatory Act.
How
to report
Those required to report their foreign accounts should file
the FBAR electronically using the BSA E-Filing System. The FBAR is due April
15. If April 15 falls on a Saturday, Sunday or legal holiday, the FBAR is due
the next business day. Taxpayers don’t file the FBAR with individual, business,
trust or estate tax returns.
Jointly-owned
accounts. If two people jointly keep a foreign
financial account or if several people each own a partial interest in an
account, then each person has a financial interest in that account. Each person
must report the entire value of the account on an FBAR.
Spouses. Spouses don’t need to file separate FBARs if they
complete and sign Form 114a, Record of Authorization to Electronically File
FBARs, and:
1.
All reportable
financial accounts are jointly owned with the filing spouse, and
2.
The filing spouse
reports the jointly-owned accounts on a timely-filed FBAR.
Otherwise, both spouses must file separate FBARs, and each
spouse must report the entire value of the jointly-owned accounts.
The e-filing system will not allow both spouses’ signatures
on the same electronic form. Spouses need to complete Form 114a to designate
which one will file the FBAR. The Form 114a is not submitted with the FBAR, it
should be kept with other financial and tax records.
Children. Generally, a child is responsible for filing their own
FBAR. If a child can’t file their own FBAR for any reason, such as age, the
child's parent or guardian must file it for them. If the child can’t sign their
FBAR, a parent or guardian must sign it.
Accounts not
reported on FBAR
Individuals don’t report individual retirement accounts and
tax-qualified retirement plans described in Internal Revenue Code Sections
401(a), 403(a) or 403(b) on the FBAR. The FBAR instructions list other
exceptions.
How to figure the
greatest account value of foreign financial accounts
Those filing the FBAR need to reasonably figure and report
the greatest value of currency or non-monetary assets in their accounts during
the calendar year. They may rely on their periodic account statements if the
statements fairly show the greatest account value during the year.
Filers figure the greatest value in the currency of the
account, then they convert that value into U.S. dollars using the exchange rate
on the last day of the calendar year. They may use another valid exchange rate
and give the source of the rate if there’s no Treasury Financial Management
Service rate available. For example, someone would typically value an account
located in Japan in yen. They would figure the greatest value of the account in
yen and then convert it into U.S. dollars.
The IRS FBAR Reference Guide has other examples of how to
report account value. The Financial Crimes Enforcement Network (FinCEN) website
has steps for Reporting Maximum Account Value.
Comparison of Form
8938 and FBAR requirements
Certain U.S. taxpayers file Form 8938, Statement of Specified
Foreign Financial Assets, as part of their tax return, but these accounts often
need to be reported on the FBAR, too. Unlike the FBAR, taxpayers file Form 8938
with their income tax returns.
Filing Form 8938 doesn’t relieve taxpayers of the separate
requirement to file the FBAR. Depending on a taxpayer’s situation, they may
need to file Form 8938 or the FBAR or both forms, and they may need to report
certain foreign accounts on both forms. Taxpayers can find a comparison of Form
8938 and FBAR requirements on IRS.gov.
Extended due date
for filing the FBAR
Those who didn’t meet the April 15 due date must file by Oct.
15, the automatically extended due date for the FBAR. They don’t need to
request the extension. If they don’t have all their information to file by the
extended due date, they should file as complete a return as possible and amend
the report when they have more information.
Amending an FBAR
Those who used the BSA E-Filing system to file their original
FBAR but later need to change it, must complete a new FBAR and check the
“Amend” box in Item 1. They’ll need to give their Prior Report BSA Identifier.
Filers receive this identifier by email or secure message from the BSA E-Filing
System when they file. For those who don’t know their identifier, they should
enter 00000000000000 in the Prior Report BSA Identifier field.
Filing late FBARs
If a person learns that they should have filed an FBAR for a
previous year, they should electronically file the late FBAR as soon as
possible. The BSA E-Filing System allows them to enter the calendar year
they’re reporting, including past years. It also offers them an option to
explain the reason for the late filing or show if it’s part of an IRS
compliance program.
Penalties for
failure to file an FBAR
Individuals who don’t file an FBAR when required may be
subject to civil and criminal penalties. The largest civil penalty for a
willful violation of the FBAR requirements is the greater of $124,588 or 50
percent of the balance in the account at the time of the violation. Non-willful
violations can result in a penalty as high as $12,459 for each violation.
Criminal violations of FBAR rules can result in a fine and/or five years in
prison. The government adjusts the penalty amounts annually for inflation. The
penalties section of the IRS FBAR Reference Guide has more details about
penalties.
The IRS will not penalize those individuals who properly
report foreign financial account on a late-filed FBAR, and the IRS finds they
have reasonable cause for late filing.
Recordkeeping
Generally, individuals filing an FBAR should keep records of
accounts that need reporting for five years from the due date of the report.
They should keep the:
·
Name on each
account,
·
Account number or
other designation,
·
Name and address of
the foreign bank or other person who keeps the account,
·
Type of account, and
·
Greatest value of
each account during the reporting period.
They should also keep copies of their filed FBARs. However,
officers or employees who file an FBAR to report control over an employer’s
foreign financial account don’t need to personally keep records on their
employer’s accounts.
FBAR help
For help completing the FBAR, call 651-300-4777.
Taxpayers can also email questions to abatax81@gmail.com. If
you would like to discuss how these affects your particular situation, and any
planning moves you should consider in light of them, please give me a call.
Amare Berhie, Senior Accountant
(651) 300-4777
