Despite the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) publishing final regulations for reporting bank accounts, securities accounts and other financial accounts located in a foreign country on Form TD 90-22.1, Report of Foreign Bank and Financial Accounts (the "FBAR"), many taxpayers remain confused regarding the filing requirements, including the fast-approaching and accelerated filing deadline.
If you have a financial interest in, or signature authority over, a foreign financial account (the "foreign accounts"), including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the foreign account to the Internal Revenue Service by filing the FBAR by June 30, 2013, or sooner as discussed below. Unlike income tax filings:
- FBARs must be RECEIVED and not simply mailed by the due date;
- The FBAR deadline is NOT EXTENDED to the next business day when the due date falls on a holiday or weekend; and
- An extension of time to file FBAR after the June 30, 2013, due date is not available.
The current year filing deadline for FBARs is Sunday, June 30, 2013. As a result of these "quirks" in the rules, the due date is essentially accelerated and filers should plan ahead to ensure timely receipt by the Treasury Department by Friday, June 28.
If a filer is unable to ensure receipt by June 28, timely filing is still possible by electronically filing the FBAR through the BSA E-Filing System (http://bsaefiling.fincen.treas.gov/main.html) through Sunday, June 30, 2013. A User Application Form must be submitted prior to filing in order to establish an account. Therefore, to the extent the filer is unable to paper file by June 28, we recommend taxpayers establish their account well in advance of the June 30 deadline to avoid any last minute issues that may arise during the registration process. Additionally, beginning July 1, 2013, the Treasury Department will no longer accept paper filings and all FBARs must be electronically filed.
The Purpose of This Form
The FBAR form is a tool used by the United States government to identify persons who may be utilizing foreign financial accounts to circumvent United States tax laws. Revenue Agents or investigators use the FBAR to help identify or trace funds used for illicit purposes, including counter-terrorism, or to identify unreported income maintained and/or generated abroad. While U.S. citizens are taxed on worldwide income, many foreign financial institutions do not adhere to the same reporting requirements as domestic financial institutions (i.e., Form 1099s).
Who Must File
Any U.S. person, with few exceptions, with a financial interest in, or signature authority or other authority over, any foreign financial account(s) in a foreign country and the aggregated value of these account(s) exceeds $10,000 at any time during the calendar year must file Form TD 90-22.1, Report of Foreign Bank and Financial Accounts. Foreign financial account(s) include, but are not limited to, a checking/savings bank account, brokerage account, mutual fund, trust, or other type of foreign financial account. A U.S. person includes a U.S. citizen, a foreign national who is a U.S. tax resident and a U.S. entity, e.g., a corporation, a partnership, a limited liability company ("LLC") or a trust that is created, organized or formed under the laws of the U.S., any State, the District of Columbia, the Territories, the Insular Possessions of the U.S. or the Indian Tribes.
What Needs to Be Reported
If a filing requirement exists, personal information, such as name, address and Social Security number, along with the following, must be reported:
- Maximum value of the account during the calendar year;
- Type of account (i.e., bank, securities, foreign mutual funds, foreign-issued life insurance/annuity contract with cash value, etc.);
- Name of financial institution in which account is held;
- Account number; and
- Mailing address of financial institution.
The IRS defines maximum account value as the largest amount of currency and/or monetary instruments that appear on any quarterly or more frequently issued account statement during the tax year.
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. Civil penalties range from $500 to $100,000 (or 50 percent of the amount in the account at the time of the violation, whichever is greater), while criminal penalties range from $10,000 to $500,000, including incarceration of up to 10 years.
Taxpayers with foreign accounts may wish to consult with a qualified tax professional to ensure compliance with all necessary tax filings related to their foreign account(s) and to avoid the onerous penalty assessments which may result from a failure to report.
If you would like more information about this topic or your own unique situation, please contact Michael Gillenin the Tax Accounting Group or the practitioner with whom you are regularly in contact.
As required by United States Treasury Regulations, the reader should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.
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