[Warning: The information on this page may be dated. Paper filings are no longer allowed. All reporting is now done electronically. Visit the IRS FBAR page for the most current information.] The due date for filing Reports of Foreign Bank and Financial Accounts (FBAR for short) is around the corner. As a reminder to our clients and readers, we annually publish this brief summary.
When must FBARs be filed?
The due date is June 30th. Since that falls on a Sunday, be safe and file by Friday, June 28th. (Electronic filings are available but I don’t recommend trying to figure out how to file electronically on Sunday night.)
Remember that the FBAR is a technically a Treasury Department form. Just because you are on extension for your income tax return does not give you an extension for FBARs. There are no extensions. There are some minor exceptions including some business managers having signature authority over certain type accounts but if you are unsure, plan on June 30th or seek professional assistance immediately.
Who must file an FBAR?
If you are a U.S. taxpayer holding more than $10,000 in qualified foreign financial accounts at any time during the preceding year you must file an FBAR. Those having signature authority over these accounts must also file FBARs.
U.S. taxpayer includes individuals who are required to file a 1040 return, U.S. citizens no matter where they live and resident aliens (“green card holders). If you are a foreigner living here, a green card holder no matter where you reside or an American citizen living overseas, you must file an FBAR.
Corporations, partnerships, trusts and LLCs must also file FBARs if organized under the laws of the U.S. or located in the U.S. Certain other entities such as real estate investment trusts (REITS) and other entities organized under U.S. law or located here may also have to comply.
$10,000 threshold Whether you have one account with $10,000 or 5 accounts with $2000, if your foreign holdings in the aggregate exceed the threshold, you must file an FBAR. Even if your accounts only exceeded $10,000 for a day or two, you must file. We often see this happen when someone opens an account simply to fund an investment or real estate purchase and that account only remains open for a few weeks.
Foreign Financial Account. This one can get tricky. If you are unsure, ask a tax attorney or CPA specializing in offshore reporting.
Included in the definition of qualified accounts are checking accounts, savings accounts, certificates of deposit, foreign hedge fund holdings and other deposit accounts. Certain investments, annuities and even some insurance products with an investment component may qualify.
Foreign commodity accounts that let you hold silver and gold usually require an FBAR.
Foreign retirement accounts may qualify. There are country specific treaties that can impact on whether an FBAR is required. Don’t rely on your bank or retirement plan administrator to provide accurate advice.
I already filed a FATCA form 8938 with the IRS listing my foreign accounts, do I still need to file an FBAR?
Yes! The reporting requirements for FBARs and FATCA are different (although there is significant overlap). It is possible to have to file only one and not the other or both may be required. Filing a FATCA form with the IRS does not eliminate the need for FBAR compliance.
What happens if I don’t file an FBAR?
Willful failure to file an FBAR is a felony punishable by 5 years in prison. If that doesn’t get your intention, the civil penalties certainly will.
While few people are actually prosecuted criminally, the IRS does routinely impose the civil penalties for willful failure to file FBARs. Those penalties are the greater of $100,000 or 50% of the highest account value for each year and each unreported account. Although the IRS can look back 8 years, often the IRS will impose a penalty for just 1 year.
The IRS believes that if you failed to file an FBAR and you or your tax preparer checked the “no” box on the Schedule B question asking about foreign accounts, your actions were “willful.”
Non-willful violations are subject to penalties up to $10,000 per account per year. In some instances, we have seen the IRS waive all penalties but be prepared for an audit first.
I didn’t know about FBARs and have not filed them for years. What should I do?
This is a hidden trap that can really get you in trouble. Many people are afraid to come forward once they realize they have exposure for years of missing FBARs. While simply doing nothing and hoping you don’t get caught may sound tempting, the risks of getting caught are high and getting worse by the day.
Others believe they can “quietly” file the missing past due FBARs and not get caught. While that too sounds like a good strategy, the IRS has publicly stated that they will cull through the FBAR filings in search of people trying to make these so-called “quiet disclosures.” Those folks are subject to huge penalties. Making a quiet disclosure buys you some time but it doesn’t buy any peace of mind.
The IRS is running a tax amnesty program for those with missing FBARs and unreported foreign accounts. For people with small accounts or who can prove their actions were not willful, much better options may be available.
With such high stakes and complex regulations, anyone with past due FBARs should consult with a tax lawyer specializing in offshore reporting issues.
The FBAR lawyers at Mahany law have helped many taxpayers with a wide variety of offshore tax reporting services including FBAR preparation, FATCA compliance, foreign real estate transactions and more. For more information, contact attorney Brian Mahany or by telephone at (414) 258-2375. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany Law is the preferred legal services provider for FBAR compliance to the CPAmerica organization of accounting firms. We represent clients throughout the world and United States. Have questions? Call us without obligation or use the search engine feature of our Due Diligence blog. We have hundreds of helpful articles. See our presentations on FBAR and FACTA.
IMPORTANT NOTE 2019: Our tax practice is solely limited to representing IRS whistleblowers including whistleblowers with information about unreported foreign accounts. See the FBAR and FATCA link above.