For many taxpayers, filing an annual report of Report of Foreign Bank & Financial Accounts (FBAR) is an essential part of satisfying one’s tax obligation. Fortunately, the FBAR instructions are fairly straight forward.
In general, U.S. taxpayers and others with sufficient connections to require them to pay taxes to the United States must file FBAR when the balance of his or her foreign account or accounts exceeds $10,000 during a calendar year.
A failure to file FBAR, even an inadvertent one, can result in a penalty of $10,000 for each year of noncompliance. When the failure to file FBAR appears to be willful – the product of a voluntary or intentional action – penalties escalate to encompass the original account balance.
Failure to file FBAR can cause significant financial turmoil and additional tax problems, such as an audit or criminal investigation, including potential criminal tax and foreign information reporting exposure. Whether you are in Los Angeles, Orange County or near any of our 13 northern or southern California locations we can represent you in one of our convenient nearby tax offices.
It is essential for taxpayers to satisfy their FBAR form filing obligation each and every year. (Here is information for FBAR form filing.) Taxpayers can work to file their FBAR individually or, for peace of mind, they can work with a tax professional. Understanding the steps involved in the filing and disclosure process can help you make a wise decision regarding how you will handle your FBAR filing duty.
What Constitutes an FBAR Account?
Almost any account that a foreign financial institution maintains for you will count toward your FBAR $10,000 limit.
These accounts include standard types of foreign financial accounts, such as savings, deposits, time deposits, and securities. Checking, brokerage, investment, and savings accounts all qualify for FBAR monitoring.
But you also have to report amounts in less common types of foreign financial accounts and situations, such as commodity futures or options. Should you hold a whole life insurance policy or an annuity policy in a foreign account, this also qualifies for FBAR tracking.
By What Date Must I Submit My FBAR Filing?
For tax filings in the past, the filing deadline for FBAR was June 30 with no extension available.
However, starting in 2017 for the 2016 tax year and moving forward, the FBAR filing deadline has been moved to align with the traditional tax filing calendar. Provisions contained within the Surface Transportation & Veterans Healthcare Choice Improvement Act of 2015 moved the FBAR filing deadline for the 2016 tax year and beyond to April 15 of the following calendar year. However, under the new rules, deadline extensions will be possible to line up the FBAR requirement with extensions available for your personal tax return.
Thus, we are in a transition period for FBAR reporting. For the 2018 tax year, the FBAR deadline will be April 15, 2019, with individual extensions available./p>
Understand that the IRS recommends you retain any records of accounts that meet FBAR requirements for at least five years from the FBAR filing due date for a particular tax year. As part of these records, make sure you have the name of the account holder, the account number, the address of the foreign financial institution, and the maximum value of the account in the reporting period.
Working with an experienced tax attorney who handles FBAR and offshore disclosures can give you peace of mind that your filing will be properly handled in a timely manner.
Taking the Instructions, Then Filing FBAR
Until 2013, taxpayers had the choice between filing in an electronic or traditional format, but this is no longer an option. All taxpayers are now required to handle their entire FBAR reporting duty through the Financial Crimes Network’s (FINCEN) Bank Secrecy Act portal. From the FINCEN web portal taxpayers can access FINCEN Form 114, which is utilized for one’s FBAR filing. After accessing the form on the website, the taxpayer must complete the form in an accurate and comprehensive manner.
If you have questions regarding items on FINCEN Form 114, you should consult a tax professional. However, a brief description of some of the items requested includes:
- Filing name – This is a filer-determined name that will be used to track the FBAR. The name must be unique. Jane Doe’s 2018 FBAR or ACME123 Corporation’s 2018 FBAR would be acceptable names.
- Authorized third-party filer – This box should only be checked if the taxpayer has engaged with a tax professional. If the taxpayer is filing his or her own FBAR this box should be left blank.
- TIN – Individuals and entities with a Taxpayer Identification Number should enter it here. However, not all individuals will have a TIN. Instead, they should provide the identifying information requested in item number 4.
- Information on financial accounts – Taxpayers must provide information regarding foreign financial accounts held independently and held jointly. Separately owned accounts should be entered into Section II, Item 15, including the maximum value of the account during the past year. The type of account should be entered into box 16, the financial institution into box 17, and the account number into box 18. Additional financial institution information should be provided in boxes 19-23. Similar information regarding jointly owned accounts should be entered into Section III of the form.
- Signature authority accounts – Accounts where the taxpayer holds signature authority but does not hold an actual interest in the asset or property must be disclosed in Part IV of FINCEN Form 114.
- Consolidated FBAR information – Certain entities directly or indirectly owning more than half of an interest in another entity may file a consolidated reported. To indicate that a consolidated report is being filed, Item 2d in Section I should be selected and Section V of the FBAR should be completed.
The above covers only the basics of obtaining FBAR instructions and completing an FBAR. For many taxpayers, specific advice from a tax professional will be necessary. The FBAR lawyers at The Tax Law Offices of David W. Klasing can provide on-point guidance for annual FBAR filings, FBAR problems, and other concerns regarding offshore accounts. To schedule a reduced-rate FBAR consultation call us at 800-681-1295 or contact us online today.
What Happens if You Fail to File an FBAR as Required?
The potential penalties if you are caught by the IRS for not filing an FBAR or filing incomplete or misleading FBAR statements depends on whether or not your conduct was willful, meaning done on purpose to defraud the IRS rather than as a result of unintentional error. For non-willful violations, criminal penalties typically will not apply, and civil penalties will be limited to $10,000 for each non-willful failure to file an FBAR. For willful violations, criminal penalties can apply, and the fines and fees assessed as civil penalties will be much larger. For a willful violation, the maximum penalty is increased from $10,000 per violation to $100,00 per violation or 50% of the amount in the account at the time of the violation.
For foreign accounts containing large amounts of money, this could result in extremely hefty fines. In addition, you will have to worry about the possibility of the IRS filing a separate criminal case against you. If convicted of a willful failure to file FBAR, you could face separate fines of up to $250,000 and up to 5 years in federal prison.
How Can a Tax Attorney Help Me Get Back into Compliance If I Have Failed to File FBAR?
If you met the eligibility thresholds in past years but did not file an FBAR as required, or if your FBAR report was misleading or inaccurate, the best thing you can do is reach out to a skilled dual licensed Tax Attorney and CPA like those at the Tax Law Offices of David W. Klasing as soon as possible. The longer you wait to deal with your issue, the more likely it is that the IRS will catch on to your conduct and begin an audit or criminal tax investigation. Once such an audit or investigation has begun, this will severely limit our ability to mitigate the damage. At that point, we will have to focus on defending an eggshell audit or defending against a criminal investigation to try to prevent criminal charges from being filed against you and minimizing the financial damages.
If you get in touch with us prior to the audit or investigation beginning, however, we may be able to get you into a voluntary or streamlined disclosure program, or even just amend your returns if the mistake was small, unintentional, and recent. Voluntary and streamlined disclosure programs offer taxpayers the opportunity to disclose past errors regarding FBAR in exchange for a near guaranteed pass on criminal prosecution as well as significantly lower fines and other financial penalties. Which of these programs you may want to avail yourself of will largely depend on whether your actions were willful and whether you are a domestic, expat or foreign taxpayer? As always, consult with an experienced dual licensed Tax Attorney & CPA like those at the Tax Law Offices of David W. Klasing before making any decisions about amending your returns or entering into a voluntary or streamlined disclosure program, so that we can advise you of any potential downside you could face and guide you through the often-complex process.