Date: 06/21/11
Topic: Criminal Tax Defense
Report of Foreign Bank and Financial Accounts
We have a rapidly approaching deadline of June 30, 2011, just over a week away from the mailing of this e-mail. This deadline is different than the vast majority of IRS deadlines in that the FBAR or TDF 90-22.1 (FinCen 114) has to be RECEIVED rather than mailed to the IRS by that date. I.E. if you mail the TDF 90-22.1 (FinCen 114) on June 30, 2011 if will be late and subject to a $10,000 fine. It has to be in the IRS’s hands (Delivered) by June 30 2011.
This form could also result in penalties that could easily be a multiple of the funds offshore and could even result in criminal prosecution if the non filing of the form were found to be willful.
BACKGROUND INFORMATION
You may need to fill out Treasury Department Form 90-22.1 every year if you own, or have an interest in, any foreign bank accounts or other types of financial accounts based outside the United States. This report is separate from your income tax return, although the two reports can be interrelated.
REPORTING FOREIGN BANK ACCOUNTS
You must report accounts you hold in foreign banks and other financial institutions if your total balance across all your accounts is $10,000 or greater at any time during the year. This is true both of accounts for which you are the owner and accounts over which you are not the owner but have authority to conduct transactions on behalf of the account owner.
Income generated inside of these foreign financial accounts is also reported on your income tax return in the year the income is earned. You’ll report the foreign income based on the type of income being generated. For example interest and dividends would be reported on your Schedule B, capital gains on your Schedule D, and so forth. If you earn dividends or interest in these accounts, be sure to check the box in Part III Line 7a of Schedule B and indicate the country or countries where you have accounts. Additionally, any foreign taxes paid on your interest and dividends may qualify for the Foreign Tax Credit on Form 1116.
Additionally, report each foreign financial account you hold on Treasury Department Form 90-22.1 (PDF, 8 pages includes instructions). This form is pretty self-explanatory. You will provide information on all your financial accounts held in foreign countries, such as the name of the bank or financial institution where the account is held, your account number, and account balance. Be aware that the Foreign Bank Account Report is filed for each accountholder. Married couples would need to file separate reports, and accounts having multiple accountholders or persons with signature authority may have several persons or businesses reporting the same account on separate reports.
WHAT TYPES OF FOREIGN FINANCIAL ACCOUNTS ARE REPORTABLE?
The following types of financial accounts would need to be reported on the Foreign Bank Account Report if you meet the filing requirement threshold:
- Bank accounts (checking and savings)
- Investment accounts
- Mutual funds
- Retirement and pension accounts
- Securities and other brokerage accounts
- Debit card and prepaid credit card accounts
- Life insurance and annuities having cash value
What types of bank accounts and financial accounts need to be reported to the Treasury is discussed in detail in 31 CFR Part 1010 and in the Treasury Department’s explanation of their revisions to these regulations that were published on February 24, 2011 in the Federal Register. I refer you to that document for a very detailed analysis concerning what types of financial accounts are reportable.
WHEN TO FILE
Treasury Form 90-22.1 is due June 30th of each year to report foreign bank accounts owned in the previous year. The instructions for this form does not make this clear, but the foreign bank account report must be received by the Treasury Department by June 30th, instead of being postmarked by that date. Quoting from the Internal Revenue Manual section 4.26.16.3.7, “The FBAR is considered filed when it is received in Detroit, not when it is postmarked.” (The Internal Revenue Manual is an internal document outlining how work is processed.)
What if you miss the filing deadline? You should file TD F 90-22.1 to report your foreign bank accounts even if you miss the June 30th deadline. Why? There are very stiff penalties for willfully failing to file this report.
Late filers should file their FBAR as soon as possible and should attach a brief explanation of why you are filing late. While there are stiff penalties for failing to file the form, those penalties could possibly be waived or reduced based on your particular situation. Under no circumstances should you not file Form TD F 90-22.1, since that would be a willful failure to fail. According to an IRS spokesperson in Washington, DC,
The law governing form TD F 90-22.1 “provides for a nonwillful penalty of up to $10,000 per violation for violations occurring after October 22, 2004. This penalty will be waived, however, if the person can show reasonable cause for the violation and if the person provides a late-filed [Form TD F 90-22.1] with the information that should have been reported earlier.
“IRS will consider the facts and circumstances of each case in determining whether penalties are appropriate. Persons who have not timely filed [Foreign Bank Account Reports] should attach a statement explaining why the [Form] was not timely filed.”
In the time since I first sourced that hopeful-sounding quotation, the IRS has become increasingly austere in its enforcement of the foreign bank reporting requirements, and the IRS has started imposing very stiff penalties on taxpayers who have failed to file the FBAR and also failed to report their foreign-source income.
The IRS is currently conducting a voluntary disclosure initiative for people who need to file late foreign bank account reports and need to report previously undeclared foreign income. This Offshore Voluntary Disclosure Initiative has a deadline of August 31, 2011.
Persons who are considering this voluntary disclosure program should consult with a tax attorney before participating in this IRS program.
WHERE TO FILE
Mail your completed and signed TD F 90-22.1 to the Treasury Department at the following address:
Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621
Do not mail TD F 90-22.1 with your tax return, and do not mail the form to the IRS.
You can, however, hand-deliver TD F 90-22.1 to any local office of the Internal Revenue Service, and they will forward the form to the Department of the Treasury for processing. Many US embassies will also accept your foreign bank account report, and they will forward it to the Treasury. FBARs cannot, as yet, be filed electronically with the Treasury.
FORMS AND INSTRUCTIONS
You can obtain TD F 90-22.1 (PDF, 8 pages) along with instructions for filling out the form from the IRS Website.
