Under 31 U.S.C. §5311, and its regulations, a U.S. person that has financial interest in or signature authority over one or more foreign financial accounts must file a FBAR (Foreign Bank and Financial Accounts) if the total value of the accounts exceed $10,000.00 at any time during the calendar year. This report, filed on Form TD F 90-22.1, must be received by the IRS on or before June 30th of the calendar year following the year for which the foreign financial account is being reported.
The range of reportable financial accounts that must be reported is wide-ranging. These accounts include: bank accounts, securities accounts, and other financial accounts. Where the scope of what needs to become broad when we deal with “other financial accounts;” these include mutual funds and other pooled funds that shares to the public, insurance policies and annuities with a cash value, accounts with brokers or dealers of futures or options in commodities, and accounts with persons whose business is accepting deposits as a financial agency.
A U.S. person, for the purposes of FBAR reporting, includes individuals who are citizens or residents of the United States; this includes U.S. citizens who are permanently living abroad. These individuals would need to report a FBAR for accounts held in their country of residence and other foreign locations. The term U.S. Person, includes, but is not limited to: a corporation, partnership, trust, or limited liability company.
The U.S. Government can impose a penalty of up to $10,000.00 per account if not filing a FBAR is not willful. However this penalty can be avoided if two conditions are met:
1. The failure to file was due to reasonable cause, and
2. The balance in the account was properly reported on the FBAR
Therefore, if the taxpayer had “reasonable cause” regarding the failure to file for prior tax years and now it files the FBAR, the $10,000.00 penalty can be avoided.
“Reasonable cause” exists if a taxpayer “exercised ordinary business care and prudence in determining its obligations but nonetheless is unable to comply with those obligations.”
The willfully failure to file FBAR, the maximum penalty is much higher. “Willfulness” means the “voluntary, intentional avoidance of a known legal duty.” The maximum penalty for willfully failing to file is $100,000.00 or 50% if the balance in the account at the time of non-filing. In additions, a willful failure to file can result in a fine of $250,000.00 and five years in prison.
As you can see the IRS is serious about filing your foreign bank account information
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, and Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle