U.S. taxpayers with an interest in or signature authority over foreign financial accounts, with a total aggregate value that exceeds $10,000 at any time during 2015, must electronically file the Report of Foreign Bank and Financial Accounts (FBAR) form by June 30, 2016.
The Financial Crimes Enforcement Network (FinCEN) requires the filing of the FBAR, or FinCEN Form 114, in an effort to help the Internal Revenue Service (IRS) and the U.S.
Who must file an FBAR?
U.S. citizens (including children), residents, entities (such as corporations, partnerships and limited liability companies) and trusts or estates formed under the laws of the United States are required (with some exceptions) to file an FBAR form for a calendar year if the total value of all foreign financial accounts exceeded $10,000 at any point during that year.
Foreign financial accounts include, but are not limited to: foreign bank or brokerage accounts, securities, savings, demand, checking, deposit, time deposit, foreign mutual funds, commodity futures or options account, foreign accounts held by a foreign or domestic grantor trust for which you are the grantor, foreign-issued life insurance or annuity contracts with cash value, as well as indirect interests in foreign financial accounts through an entity with interest greater than 50%.
Current and new filing due dates
The filing deadline for the 2015 FBAR was June 30, 2016. The form must be electronically filed and received by the IRS no later than this date with no further extensions available. Although this is an information report only, taxpayers should be mindful that any income received from these foreign accounts must be reported on the annual income tax return, and the status of foreign account(s) owned and FBAR filing requirement disclosed on Schedule B of the Form 1040. The FBAR is in addition to any foreign financial asset disclosures that may need to be included with the filing of an income tax return.
Beginning in 2017, the 2016 tax year filing deadline for the FBAR will be accelerated to the Form 1040 tax return filing due date of April 15, with an extension to file allowed to October 15. The procedural rules as to the filing of such extension have not yet been formalized.
Offshore Voluntary Disclosure Program (OVDP)
For those who have neglected to file the Form 114 in the past, the IRS has offered compromises to bring delinquent filers into compliance.
The formal OVDP currently in place will offer those not already under IRS review to avoid criminal prosecution for willful conduct. Compliance is onerous, requiring filing of prior eight years’ tax returns and Forms 114. Penalties are also high at up to 50 percent of the highest aggregate value of the unreported foreign assets. The current OVDP program has no end date but the terms are subject to change at any time. Previous versions of the OVDP were more favorable to taxpayers. The next OVDP version will undoubtedly have more stringent terms.
If eligible, streamlined offshore procedures offer simplified rules for those whose failure to file was not willful. Compliance is reduced to filing three years of tax returns and six years of Form FinCEN114. Those who reside in the U.S. under this streamlined procedure are subject to a 5 percent penalty of the unreported assets each year, while those residing outside of the U.S. would not incur penalties.
U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. The new Form 8938 filing requirement is in addition to the FBAR filing requirement. A chart providing a comparison of Form 8938 and FBAR requirements may be accessed on the IRS Foreign Account Tax Compliance Act web page.
How Can We Help
Due to increased scrutiny and severe penalty regime with respect to failure to file FBAR’s/FinCEN Form 114’s, it is important for all individuals and entities to review whether there is any financial interest in or signature authority over accounts subject to FBAR’s/FinCEN Form 114’s, reporting. We can help you review these requirements and submit any FBARs electronically under the streamlined and OVDP procedures and Penalty Appeals.