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.