Despite the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) publishing final regulations for reporting bank accounts, securities accounts and other financial accounts located in a foreign country many taxpayers remain confused regarding the filing requirements, including the fast-approaching and accelerated filing deadline.
Historically, the disclosure of foreign bank accounts was done by filing Form TD 90-22.1, Report of Foreign Bank and Financial Accounts (“FBAR”) with the U.S. Department Of Treasury. Any person who has a financial interest in, or signature authority over, a foreign financial account (the “foreign accounts”), including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, is required under the Bank Secrecy Act to report the foreign account to the U.S. Department Of Treasury by filing the FBAR by June 30th of the following calendar year. Unlike income tax filings an extension of time to file FBAR after the June 30th due date is not available.
While the requirements and deadline for disclosing foreign bank accounts have not changed, the reporting form and manner of filing has. Now disclosure is made by e-filing FinCEN Form 114.
The Purpose of The FBAR Form
The FBAR form is a tool used by the United States government to identify persons who may be utilizing foreign financial accounts to circumvent United States tax laws. Revenue Agents or investigators use the FBAR to help identify or trace funds used for illicit purposes, including counter-terrorism, or to identify unreported income maintained and/or generated abroad.
Who Must File
Any U.S. person, with few exceptions, with a financial interest in, or signature authority or other authority over, any foreign financial account(s) in a foreign country and the aggregated value of these account(s) exceeds $10,000 at any time during the calendar year must file and FBAR. Foreign financial account(s) include, but are not limited to, a checking/savings bank account, brokerage account, mutual fund, trust, or other type of foreign financial account. A U.S. person includes a U.S. citizen, a foreign national who is a U.S. tax resident and a U.S. entity, e.g., a corporation, a partnership, a limited liability company (“LLC”) or a trust that is created, organized or formed under the laws of the U.S., any State, the District of Columbia, the Territories, the Insular Possessions of the U.S. or the Indian Tribes.
What Needs to Be Reported
If a filing requirement exists, personal information, such as name, address and Social Security number, along with the following, must be reported:
Maximum value of the account during the calendar year;
Type of account (i.e., bank, securities, foreign mutual funds, foreign-issued life insurance/annuity contract with cash value, etc.);
Name of financial institution in which account is held;
Account number; and
Mailing address of financial institution.
The IRS defines maximum account value as the largest amount of currency and/or monetary instruments that appear on any quarterly or more frequently issued account statement during the tax year.
Failure to File
While the FBAR is an information return that imposes no tax, significant civil and criminal penalties may be asserted for failure to file. The civil penalty for willful failure to file an FBAR equals the greater of $100,000 or 50% of the total balance of the foreign account per violation. The government may also pursue criminal prosecution which can result in up to five years of jail time. Non-willful violations that are not due to reasonable cause incur a penalty of $10,000 per violation.
Offshore Voluntary Disclosure Initiative (“OVDI”)
This program was first created in 2009 as the Offshore Voluntary Disclosure Program (“OVDP”) but in 2011 was renamed to OVDI. Generally, the miscellaneous offshore penalty under the OVDI program (the “OVDI penalty”) equals 27.5% of the highest aggregate balance in the foreign assets or entities during the years covered by the OVDI program, but may be reduced in limited cases to 12.5% or 5%. Certain taxpayers may qualify for even greater savings through a reduction of the offshore penalty.
Taxpayers participating in the ongoing 2012 OVDI generally agree to file amended returns and file FBARs for eight tax years, and in addition to paying pay the OVDI penalty (which is assessed in lieu of all other potentially applicable penalties associated with a foreign financial account or entity) taxpayers would pay the appropriate taxes and interest together with an accuracy related penalty equivalent to 20% of any income tax deficiency
Taxpayers whose highest aggregate foreign account balance is less than $75,000 for each of the years in the OVDI disclosure period may qualify for a reduced 12.5% OVDI penalty.
Taxpayers who fall into one of three specific categories may qualify for a reduced 5% OVDI penalty. The first category includes taxpayers who inherited the undisclosed foreign accounts or assets. Second, taxpayers who are foreign residents and who were unaware that they were U.S. citizens may qualify for a reduced 5% OVDI penalty. Finally, U.S. taxpayers who are foreign residents may also qualify for the reduced 5% OVDI penalty in certain circumstances.
What Should You Do?
Don’t let another deadline slip by. If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (“OVDI”). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.
Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Francisco, San Diego and elsewhere in California qualify you for OVDI.
Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.