The Internal Revenue Service (“IRS”) has continued to crack down on United States taxpayers with foreign bank accounts containing over a certain amount of funds. Since the enactment of the Foreign Account Tax Compliance Act (“FATCA”) in March 2010, more and more foreign banks have begun to provide information to the IRS. A U.S. “Person”, defined as a U.S. citizen or a non-citizen residing in the U.S., who holds a foreign account may have a reporting obligation even when the foreign account produces no taxable income. The reporting obligation is met by answering certain questions on a tax return about foreign accounts and by filing a Foreign Bank and Financial Accounts Report (“FBAR”).
The What and How of Reporting
An FBAR is a calendar year report that much be filed on or before June 30 of the year following the calendar year being reported. The IRS now requires that FBARs be filed electronically through FinCEN’s Bank Secrecy Act (“BSA”) E-Filing System. The FBAR is not filed with an individual’s federal tax return.
A “U.S. Person” must file an FBAR with the Department of Treasury if: (1) the person has a financial interest in or signature authority over at least one financial account (includes bank account, brokerage account, mutual fund, trust, or other type of foreign financial account) located outside the United States AND (2) the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year. An individual who fails to properly file a complete and correct FBAR may be subject to a civil penalty of $10,000 per violation for non-willful violations due to reasonable cause. For willful violations the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation.
Individuals who have failed to properly disclose a foreign financial account on their federal tax return or timely file an FBAR have four options to become compliant depending on their specific facts. The first option is the Offshore Voluntary Disclosure Program (“OVDP”). Second, are the streamlined filing compliance procedures, either the Streamlined Foreign Offshore procedure or Streamlined Domestic Offshore Procedure. Third is the Delinquent FBAR Procedures and fourth is the Delinquent International Information Return Submission Procedures.
Miller, Miller & Canby attorneys have been helping clients on IRS matters for more than 60 years and have assisted many clients on FATCA reporting issues. If you are interested or have any questions about which compliance option is most advantageous for you, contact Glenn M. Anderson or Michael S. Spencer in Miller, Miller Canby’s Business and Tax practice group.