In 1970, Congress passed the Bank Secrecy Act which was pretty much the first law on the books in the US to require banks and other financial institutions to reveal personal financial information to the government. Yep, this was long before the Patriot Act, and was originally meant to assist law enforcement agencies in the fight against money laundering.
Over the years, the government has become a lot more interested in your financial information. The events on 9.11 made it even more acceptable (depending on your definition of acceptable). Now, reporting information about your financial accounts is a huge big deal to the IRS and tops on the list are the Report of Foreign Bank and Financial Accounts requirements (31 CFR 103.24), or the FBAR rules.
The FBAR rules focus on foreign accounts. Under the rules, each “US person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000. A “US person” generally means a citizen or resident of the United States, or a person in and doing business in the United States – it is not limited to individual taxpayers and includes partnerships and corporations.
For years, the IRS has taken a low key approach to FBAR reporting. And by low key, I mean they kind of crossed their fingers and hoped for the best. That was because, while the FBAR rules had some serious consequences, the IRS had no teeth when it came to enforcement. But that was then. Improving FBAR compliance has officially been a Treasury Department priority since the enactment of the Patriot Act of 2001 but those efforts have largely been targeted towards identifying and shutting down funding for terrorist-related activities. Now, the IRS has made the monitoring foreign accounts as part of their targeted enforcement strategy.
Why now? Oh, it’s not a coincidence. Clearly, the IRS has been encouraged by their successes in forcing UBS to turn over the names of a number of account holders. And then HSBC. Foreign accounts are officially fair game.
So here’s what you need to know to avoid the draconian penalties imposed by the IRS for failing to report your foreign accounts… If the total of your interests in all of your foreign accounts reaches $10,000 or more at any point in the calendar year, you need to file an FBAR. The due date for the FBAR is June 30 of the following year (i.e. for 2010, the FBAR would be due on June 30, 2011). Pay attention to that date because it’s not the same as the date for your federal income tax return. And there’s no extension. Once more: there is no extension available for filing the FBAR.
To file an FBAR, check the appropriate block on your federal form 1040 at Schedule B and then file form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (downloads as a pdf) by the due date.
If you haven’t filed FBARs for the past few years and realize you should have, all is not lost. The IRS is offering yet another amnesty program to address previously unreported foreign accounts. This one, however, they swear, is the last, so keep that in mind.
If you have any concerns about your foreign accounts, FBARs or related issues, I urge you to consult with your tax pro for more information.
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