Foreign Bank Account And Financial Accounts Reporting
If you own or are listed as a signer on foreign bank or financial account(s), it must be reported annually if the aggregate balance of the account(s) was equal to or greater than $10,000 USD at any point during the year. Failure to do so may result in penalties starting at $10,000 USD per form not reported*. EACH bank or financial account is required to be reported through Form FinCEN 114 also known as Foreign Bank Account Reporting (“FBAR”).
Who must file?
An individual is responsible for filing an FBAR if that person has: (1) a financial interest or name attached to a foreign bank account or financial account; and, (2) the foreign bank account or financial accounts(s) have an aggregate value of $10,000 USD at any point during the reporting calendar year.
To emphasize, the bank or financial account does not have to be in your name. If you have an interest or a signature on an account and if that account exceeds or has exceeded $10,000 USD at any time during the year, you must report.
What is a Financial and Foreign Financial Account?
A financial account can encompass a wide array of accounts. Most commonly these accounts include fixed deposit accounts, checking, and/or savings accounts. They may also include accounts such as insurance policies with a cash value, escrow accounts, shares in foreign mutual fund accounts or other similar investment vehicles.
A financial account is considered a foreign financial account when the account is physically located outside of the United States – whether it is owned by a United States financial institution or not.
A Common Issue – Joint Accounts and Signature Authority
A joint account is an account in which more than one person has an ownership interest and/or are a signer on the account. Joint ownership of an account may exist even though an individual does not necessarily maintain or exercise financial control of the account for whatever reason. While some may believe they are not required to file an FBAR, they are indeed as their signature on the account provides a certain degree of control over the assets and are a party to communications between the bank or financial institution.
Another way to put it is the account does not need to be under your name. If you have any interest or signature on it, it needs be reported through the FBAR. For example, if you have a company offshore and the company has a foreign bank account, that account should be reported. Additionally, parents may add an offspring’s name to a foreign bank account to ensure access in the event of an emergency. Assuming the account had a value of or greater than $10,000 USD at any time within the calendar year, the existence of the foreign account must be reported on the offspring’s annual tax return.
FBAR Reporting Exceptions – Foreign Bank Account
There are few exceptions to the FBAR. These exceptions may include but are not limited to: (1) participants in and/or beneficiaries of certain Tax-Qualified Retirement Plans; (2) IRA Owners and Beneficiaries; (3) United States Military Banking Facility; and (4) Trust Beneficiaries.
Individuals with foreign bank or financial accounts meeting the reporting requirements must file their FBAR reports with the Department of the Treasury annually by April 15th of the year following the reporting year. However, individuals failing to meet this deadline are usually granted an automatic extension to October 15th.
To file your FBAR, you MUST use FinCEN’s BSA E-Filing System. Applications to file may be found at: CLICK HERE
Penalties may start at $10,000 USD per form not reported*. In certain situations, penalties may be avoided if there is reasonable cause for the failure to report and the issue is corrected. If non-reporting is willful, then the penalty amount can rise to $100,000 USD or 50% of the account balance at the time of the violation – whichever is greater.
The FBAR can be difficult to calculate and report. The RLS LAW International Tax Department, has qualified and experienced attorneys that had handled hundreds of cases related to FBARS. Our sophisticated International Tax Department is ready to assist in preparing and reporting your FBAR as well as assisting those who failed to report. If you have questions, please call for a free consultation and assessment at 619-595-1655. You can also contact us via the web at www.RJSLawFirm.com. We look forward to hearing from you.
*Note: There are two cases from two different circuits where it was found that the penalty should be imposed per form (that is, per year) and not per bank account. These two cases are U.S. v. Bittner, No. 4:19-cv-415, June 29, 2020 (Eastern District of Texas) and U.S. v. Kaufman, No. 3:18-CV-00787 (KAD), Jan. 11, 2021 (District of Connecticut).
Published by Andrea Cisneros Valdez and Andrew Rice