Are You A “U.S. Person” Subject To FBAR Filing Regulations?
Often we get calls from nonresidents or non U.S. citizens inquiring about their FBAR filing obligations. The rules can be quite confusing and the penalties severe. Hopefully this post will answer those questions surrounding the definition of “U.S. person” as used in the FBAR regulations.
FBAR is short for Report of Foreign Bank and Financial Accounts. Since the early 1970’s, U.S. law has required “U.S.persons” with a financial interest in or signature authority over at least one foreign financial account to report that account if at any time during the year the balance of that account or accounts exceeded $10,000. Prior posts have dealt with the definitions of “foreign,” “financial accounts,” and “signature authority.”
The IRS says that the term U.S. person includes U.S. citizens, U.S. residents and entities including corporations, partnerships, trusts, limited liability companies and estates organized or formed in the United States.
The IRS and FinCEN (the Financial Crimes Enforcement Network) further define U.S. citizens and residents to include aliens lawfully permitted to live or work in the U.S. If you have a “green card,” you are a U.S. person for FBAR filing purposes.
What about aliens that are here for extended periods? Regardless of green card status, the government says that if you have “substantial presence” in the United States you are a “U.S. person” for tax purposes. Federal law (26 United States Code section 7701(b)) provides a definition for substantial presence:
i) present 31 days during the year in question and
ii) “the sum of the number of days on which such individual was present in the United States during the current year and the 2 preceding calendar years (when multiplied by the applicable multiplier determined under the following table) equals or exceeds 183 days. The multiplier is: Current year (1), 1st preceding year (1/3) and 2nd preceding year (1/6)”
Yes, that formula takes a few seconds to digest. It’s easier to use an example.
Taxpayer wants to know if she has to report a $20,000 account in India. She is not a citizen or green card holder but travels to the U.S. frequently. So far this year she has been here 60 days. Last year she was here 150 days and in 2011, 90 days. Using the weighting formula developed by Congress, she was here 60 days this year + 50 weighted days last year (150 days multiplied by 1/3) + 15 weighted days in 2012 (90 days multiplied by 1/6). The total equals 125, not enough days to trigger filing.
If our hypothetical taxpayer achieves alien status, however, she will be required to report account on June 30th of the following year. Like tax returns, FBARs are due the following year.
If you think that formula is complicated, it gets worse. Like all things having to do with the tax code, Congress made exceptions for people who can’t easily leave the U.S. because of medical conditions and for folks who have applied for residency status. There are not the only exceptions, however.
For 99% of the population, FBAR compliance is relatively easy. If you have questions regarding your residency status, you may wish to simply file FBARs for any qualifying foreign accounts to err on the side of caution. We understand that many people value their privacy, however. Those folks should speak with an experienced FBAR lawyer or accountant well versed in foreign reporting.
The penalties for not filing FBARs can include prison (if the violation was willful) and often involve huge penalties which can be up to the greater of $100,000 or 50% of the highest unreported account balance for each unreported account.
The FBAR lawyers at Mahany & Ertl will gladly provide confidential, no-fee initial consultations to help answer your questions and explain your obligations. Thereafter, most services can be provided on a reasonable flat fee.
For a free consultation, contact one of our experienced IRS tax attorneys today; attorney Bethany Canfield at or by phone at (414) 223-0464. The author, Brian Mahany, can also be contacted at or (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and will be answered within 1 business day. (We also have hundreds of text searchable posts on our Due Diligence blog.)
Mahany & Ertl – America’s FBAR and Foreign Reporting Attorneys. Our services are provided worldwide.