This guest post was written by Brian Mahany, Esq. from Mahany & Ertl, a law firm specializing in offshore reporting and compliance issues. Greenback is proud to introduce you to their firm, as we trust their advice and expertise with international tax law.
The US tax season is upon us and the due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) is just a few months away. Many Americans are behind on their FBAR filings (as well as their US tax returns) and there can be serious consequences for non-compliance. You may need help getting caught up on your returns, as well as legal assistance to represent you before the IRS. Let’s take a closer look at FBAR and what you need to know.
1. When must FBARs be filed?
The due date is June 30th. Paper filings are no longer permitted, as all filings are done electronically through FinCEN Form 114. You can self- file, or use a expat tax professional to file on your behalf. If you choose a preparer to assist you, you must also fill out FinCEN Form 114A to grant them permission to file for you. Remember that the FBAR is technically a US Treasury Department form. Just because you received an extension for your income tax return does not give you an extension for FBAR. There are no extensions. There are some minor exceptions including some business managers having signature authority over certain type accounts but if you are unsure, plan on June 30th or contact an expat tax professional immediately.
2. Who must file an FBAR?
If you are a US taxpayer holding more than $10,000 in qualified foreign financial accounts at any time during the preceding year you must file an FBAR. Those having signature authority over these accounts must also file FBARs. The definition of a US taxpayer includes individuals who are required to file a 1040 return, US citizens no matter where they live and resident aliens (green card holders). If you are a foreigner living here, a green card holder or an American citizen living overseas, you must file an FBAR. Corporations, partnerships, trusts and LLCs must also file FBARs if organized under the laws of the US or located in the US. Certain other entities such as real estate investment trusts (REITS) and other entities organized under US law or located here may also have to comply. Whether you have one account with $10,000 or 5 accounts with $2000, if your foreign holdings in the aggregate exceed the threshold, you must file an FBAR. Even if your accounts only exceeded $10,000 for a day or two, you must file. We often see this happen when someone opens an account simply to fund an investment or real estate purchase and that account only remains open for a few weeks. The definition of a foreign financial account can be tricky. If you are unsure, ask us for clarification. There are so many financial instruments in the marketplace these days and new ones seem to pop up faster than the IRS amends its technical advisories. Included in the definition of qualified accounts are checking accounts, savings accounts, certificates of deposit, foreign hedge fund holdings and other deposit accounts. Certain investments, annuities and even some insurance products with an investment component may qualify. Foreign commodity accounts that let you hold silver and gold usually require an FBAR. Foreign retirement accounts may qualify. There are country specific treaties that can impact on whether an FBAR is required. Don’t rely on your bank or retirement plan administrator to provide accurate advice.
3. I already filed a FATCA Form 8938 with the IRS listing my foreign accounts, do I still need to file an FBAR?
Yes! The reporting requirements for FBAR and FATCA are different (although there is significant overlap). It is possible to have to file only one and not the other or both may be required. Filing a FATCA form with the IRS does not eliminate the need for FBAR compliance.
4. What happens if I don’t file an FBAR?
Willful failure to file an FBAR is a felony punishable by 5 years in prison. If that doesn’t get your intention, the civil penalties certainly will. While few people are actually prosecuted criminally, the IRS does routinely impose the civil penalties for willful failure to file FBAR. Those penalties are the greater of $100,000 or 50% of the highest account value for each year and each unreported account. Although the IRS can look back 8 years, often the IRS will impose a penalty for just 1 year. The IRS believes that if you failed to file an FBAR and you or your tax preparer checked the “no” box on the Schedule B question asking about foreign accounts, your actions were “willful.” Non-willful violations are subject to penalties up to $10,000 per account per year. In some instances, we have seen the IRS waive all penalties but be prepared for an audit first.
5. I didn’t know about FBAR and have not filed them for years. What should I do?
This is a hidden trap that can really get you in trouble. Many people are afraid to come forward once they realize they have years of missing FBARs. While simply doing nothing and hoping you don’t get caught may sound tempting, the risks of getting caught are high and getting worse by the day. Others believe they can “quietly” file the missing past due FBARs and not get caught. While that too sounds like a good strategy, the IRS has publicly stated that they will cull through the FBAR filings in search of people trying to make these so-called “quiet disclosures.” Those folks are subject to huge penalties. Making a quiet disclosure buys you some time but it doesn’t buy any peace of mind. The IRS is running a tax amnesty program, Offshore Voluntary Disclosure Program, (OVDP) for those with missing FBARs and unreported foreign accounts. For people with small accounts or who can prove their actions were not willful, much better options may be available. With such high stakes and complex regulations, anyone with past due FBARs should consult with a tax lawyer specializing in offshore reporting issues. This is where we can help. We work with Greenback, other accountants and even lawyers to help taxpayers come into compliance and avoid costly penalties. We have helped many taxpayers with a wide variety of offshore tax reporting services including the OVDP amnesty program.
6. Already in amnesty and having second thoughts?
You are not alone! Many people can avoid all penalties or simply have to pay a $10,000 negligence penalty. Unfortunately, some practitioners use a “cookie cutter” approach and put everyone in the amnesty program. Each case is unique; we are happy to provide second opinions and help people opt out of amnesty if the facts suggest a better deal is a reasonable possibility.
More information about your legal options
For more information, contact attorney Bethany Kroes at [email protected] or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Mahany & Ertl is the preferred legal services provider for FBAR compliance to the CPAmerica organization of accounting firms and Greenback Tax Services. We represent clients throughout the world and United States. Have questions? Call us without obligation or use the search engine feature of our Due Diligence blog. We have hundreds of helpful articles.
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