Two weeks. That’s all the time that you have left to comply with the mandatory reporting accounts for foreign accounts for the calendar year 2014.
The deadline for filing your FBAR, or federal form 114, Report of Foreign Bank and Financial Accounts, is June 30. There are no extensions.
You don’t file an FBAR with your regular tax return. It’s a separate form with a separate due date and a separate filing destination. Under relatively new filing requirements, you must file an FBAR electronically directly with the Financial Crimes Enforcement Network (or FinCEN), not the Internal Revenue Service (IRS). Don’t get nervous about the non-IRS website. Since it’s through FinCEN, you’ll go there directly. If that makes you nervous, you can start at the IRS website and click through to FinCEN.
Who has to file an FBAR? If you are a U.S. person with a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, and the total of all of those accounts is greater than $10,000 at any time during the year, you need to report. For FBAR purposes, a U.S. person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States. And yes, you read that correctly: you can be a U.S. resident for tax purposes but NOT a U.S. citizen and still be required to file an FBAR.
The reporting requirement applies even if the accounts in question produce no taxable income and even if you make no withdrawals during the year.
Failure to timely report, if non-willful, could result in a penalty of up to $10,000 for each omission. If the failure is considered willful, a penalty of up to the greater of $100,000 or 50% of account balances could apply – again, for each year of omission. More concerning, criminal penalties may also apply.
Your reporting obligations may not stop there. If you have foreign assets, you may also be responsible for filing a form 8938, Statement of Specified Foreign Financial Assets, and/or a form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations.
- The form 8938 (downloads as a pdf) applies to individual taxpayers who hold financial accounts with foreign financial institutions and certain other foreign non-account investment assets in excess of $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher limits apply to married taxpayers). Failure to file can result in a penalty of $10,000 plus an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, up to $60,000; criminal penalties may also apply.
- The form 5471 (downloads as a pdf) applies to taxpayers who may have interest in a foreign corporation as a shareholder, director or officer. A $10,000 penalty may apply for each interest you fail to disclose with an additional $10,000 penalty (per foreign corporation) applicable if you fail to disclose after IRS makes an inquiry, up to $50,000.
Both forms are due with your regular tax form on April 15 (plus extensions).
You must also be careful to check the all important box on Schedule B of your form 1040.
It’s a lot to consider. I generally recommend that you seek out a tax professional if you have ownership of assets or control over assets in foreign countries to make sure that you are in compliance.
As enforcement ramps up, so have FBAR filings. According to IRS, FBAR filings exceeded 1 million for the first time last year. In 2005, there were only 280,000 filings.
Most taxpayers actually comply with the requirements. “The vast majority of taxpayers pay their fair share. The FBAR and FATCA filing requirements make it tougher for that relatively small number of taxpayers trying to hide assets and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are encouraged to review the rules and disclose their offshore assets.”
If you’ve read to the bottom and now you’re in a cold sweat because you realize you haven’t complied in prior years, don’t panic. The IRS is currently offering an Offshore Voluntary Disclosure Program (OVDP) to help move taxpayers into compliance with a reduced penalty structure and avoidance of criminal prosecution. If you need assistance moving into compliance, immediately contact your tax professional for details about the program.
