If you are a U.S. citizen living overseas and have opened a bank account where you live, or have a foreign financial account open while living in the U.S., you are required to file an FBAR (“Report of Foreign Bank and Financial Accounts”) in order to avoid paying penalties to the IRS. This can be tricky and fraught with complexities, so you always want to have an experienced tax attorney guiding you through it all.
What is FBAR?
The Report of Foreign Bank and Financial Account, or FBAR, is an electronic form filed to the Financial Crimes Enforcement Network (FinCEN). This form is also referred to as FinCEN Form 114. The Bank Secrecy Act obligates people who have open financial accounts that exceed an aggregate amount of $10,000 outside of the United States to report those accounts annually to the U.S. Department of Treasury. The FBAR filing is completely different and separate from filing one’s personal income tax and has a different due date.
Who needs to file an FBAR?
According to the IRS, any U.S. person or entity who has a financial interest in or signature authority over at least one foreign financial account is required to file. Some examples of a foreign financial account might be, but not limited to the following:
- Brokerage accounts
- Bank accounts
- Mutual funds
- Trusts
Basically, if you have ownership, a financial interest, or control over a foreign financial account that contains an aggregate amount of $10,000 or more, you need to file an FBAR. What does aggregate amount mean? It means that if at any point, all of your open foreign financial accounts combined exceeded $10,000 during the calendar year, you must file an FBAR to report all of your accounts.
What must be reported?
According to Americans Overseas, an organization of Americans who live abroad and provide tax help for Americans, some examples of accounts that must be reported include the following:
- Bank, securities, financial instruments accounts
- Accounts held in commingled funds (mutual funds) and the account holder holds an equity interest in the fund
- Individually owned bonds, notes, stock certificates, and unsecured loans are not “accounts”
- Foreign life insurance or annuities with cash surrender value are “accounts”
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What happens if I don’t file?
As of the time this blog was written and posted, according to the IRS website, the due date per calendar year to file your FBAR is April 15th. However, you also have an automatic six month extension period if you do not file at that time. You do not need to file for an extension, this just happens automatically.
If however, you fail to meet your obligation to file, you will be subject to significant monetary penalties. It could cost you as much as $12,459 per violation for non-willful violations that are not due to reasonable cause. If you willfully fail to file, you may incur a penalty of as much as 50% of the balance in your accounts per violation.
It is imperative that you check the IRS website for more information, as these dates and figures are subject to change at any time as the laws are modified and updated.
The Offshore Voluntary Disclosure Program
For people who have taxable income in foreign financial accounts/offshore accounts and have not reported it to the IRS, the Offshore Voluntary Disclosure Program may be a reliable alternative. This program gives you an opportunity to file your FBAR and other unreported finances offshore without penalty. This IRS may shut down this program at any time, so it is important that you know of this option before it becomes obsolete.
If the IRS comes knocking at your door, Morgan Maxwell is the lawyer to call. With decades of experience in all matters regarding tax defense and tax assistance, we are suited to help you with any and all of your tax needs. Call (610) 640-9481 for help or email info@attorneysfortaxpayers.com
Written by E. Morgan Maxwell
Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.
