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June 30, 2014 FBAR Deadline Creeping Up On Taxpayers: No Extensions Available

June is a busy month for taxpayers and tax pros alike. Nestled amid due dates for estimated tax payments and deadlines for taxpayers who were out of the country on Tax Day is one of the most overlooked dates for taxpayers: June 30, 2014.

June 30, 2014 marks the due date for the Report Of Foreign Bank And Financial Accounts (“FBAR”).

The FBAR filing requirements are part of the Banking Secrecy Act. Under the Act, each “U.S. person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A “U.S. person” generally means a citizen or resident of the United States, or a person in and doing business in the United States – it is not limited to individual taxpayers and includes partnerships and corporations.

In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income.

There are some exceptions to the FBAR reporting requirements, such as:

  • Certain foreign financial accounts jointly owned by spouses;

  • United States persons included in a consolidated FBAR;

  • Correspondent/nostro accounts;

  • Foreign financial accounts owned by a governmental entity;

  • Foreign financial accounts owned by an international financial institution;

  • IRA owners and beneficiaries;

  • Participants in and beneficiaries of tax-qualified retirement plans;

  • Certain individuals with signature authority over but no financial interest in a foreign financial account;

  • Trust beneficiaries; and

  • Foreign financial accounts maintained on a United States military banking

Disclosure is made by e-filing FinCEN Form 114 (formerly Form TD F 90-22.1), Report of Foreign Bank and Financial Accounts (“FBAR”).  The FBAR has to be received on or before June 30th. No extension of time is available. Even if you filed an extension for your 2013 Federal individual income tax return – that extension does not apply to the FBAR.

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.

IRS Believes There Is a High Level Of Non-compliance

Despite the large penalties and the threat of criminal prosecution for avoiding the FBAR requirement, the 42-year-old reporting form has historically been largely unknown or unheeded by U.S. persons who are required to file it. The IRS has consistently said it believes that less than 20% of offshore accountholders subject to FBAR reporting actually submit the form in any given year.

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.

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