International tax preparation is one of our strongest areas of expertise. With residents in San Francisco often having overseas business, we do a lot of this type of work. Nowadays, one of the most confusing elements is FBAR: Foreign Bank and Financial Accounts. Here is an overview:
Foreign Bank and Financial Accounts
If you have a financial interest in or signing authority over a foreign financial account of almost any type, and it exceeds certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).
Who Must File?
Basically any US resident who has more than $10,000 aggregate in holdings in any type of overseas account. By “resident” is meant not just citizens but resident aliens and not just real people, but corporations as well.
FBAR Reporting Requirements
Even if you are not “making money,” you may still be required to file! A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
The penalties for non-compliance are steep. If you are required to file an FBAR yet fail to properly file a complete and correct FBAR, you 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, your penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation.
Late FBAR Filings
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
- For information direct from the IRS, please visit Report of Foreign Bank and Financial Accounts.