Don’t Delay: FBAR Deadline June 30th for Foreign Financial Filers
Daszkal Bolton would like to remind clients that the FBAR form (Report of Foreign Bank and Financial Accounts) is due June 30, 2013. If you are a United States person or entity with financial interest in, or signature authority, or other authority over any financial account in a foreign country, and if the aggregate value of these accounts exceeds $10,000 during the calendar year, this form must be filed.
A “United States person or entity” includes a citizen or resident of the United States, and entities including but not limited to domestic partnership, a domestic corporation, or limited liability companies created or organized in the United States, or under the laws of the United States, as well as a domestic estate or trust.
A “foreign country” includes all geographical areas outside the United States, the commonwealth of Puerto Rico, the commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States.
A single-member LLC, which is a disregarded entity for U.S. tax purposes, is considered a United States person for FBAR purposes. The tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement.
A person has “signature authority” over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or signature and that of one or more other persons) to the bank or other person with whom the account is maintained.
“Other authority” exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by other means.
Accounts include bank accounts, brokerage accounts, mutual fund, trust, or other type of foreign financial accounts. A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income.
A U.S. resident with power of attorney on accounts must still file an FBAR, even if the resident never exercised the power of attorney. If the power of attorney gives the U.S. resident signature authority, or other authority comparable to signature authority over the financial accounts, whether or not such authority is ever exercised is irrelevant to the FBAR filing requirement.
The FBAR is not filed with the filer’s Federal tax return. It is an annual report due by June 30th of the year following the year that the account holder meets the $10,000 threshold. The IRS granting an extension to file Federal income tax returns does not extend the due date for filing a FBAR. Filers cannot request an extension of the FBAR due date. However, there might be administrative relief available when there is signature authority but no financial interest in a foreign financial account. Relief may also be available for accounts in which the assets are held in a commingled fund, and for persons such as officers and employees of banks. In 2012, FinCEN (Financial Crimes Enforcement Network) extended some filing deferrals to June 30, 2014.
Daszkal Bolton advises that if a filer does not have all the available information to file the return by June 30th, they should file as complete a return as they can and then amend the document when the additional or new information becomes available.
Failure to file an FBAR when required to do so may potentially result in civil penalties, criminal penalties or both. If you learn you were required to file FBARs for earlier years, contact Daszkal Bolton immediately and we will assist you in filing the delinquent FBAR reports and statement explaining, due to reasonable cause, why the reports are filed late.
Records of accounts required to be reported on an FBAR must be retained for a period of five years. Failure to maintain required records may result in penalties as well, in addition to those for failing to file!
One form can be filed for a husband and wife owning a joint accountprovided that the names and Social Security numbers of the joint owners are fully disclosed on the filed FBAR. A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner in the FBAR. If the only reportable accounts of the filer’s spouse are those reported as joint owners, the filer’s spouse need not file a separate report. If the accounts are owned jointly by both spouses, the filer’s spouse should also sign the report. It should be noted that if the filer’s spouse has a financial interest in other accounts that are not jointly owned with the filer or has signature or other authority over other accounts, the filer’s spouse should file a separate report for all accounts including those owned jointly with the other spouse.
EXCEPTIONS TO THE REPORTING REQUIREMENTclientuploads/foreign flags.bmp
There are filing exceptions for the following United States persons or foreign financial accounts:
1. Certain foreign financial accounts jointly owned by spouses;2. United States persons included in a consolidated FBAR;3. Correspondent/”Nostro” accounts;4. Foreign financial accounts owned by a government entity or international financial institution;5. IRA owners and beneficiaries;6. Participants in and beneficiaries of tax-qualified retirement plans;7. Certain individuals with signature authority over but no financial interest in a foreign financial account;8. Trust beneficiaries; 9. Foreign financial accounts maintained on a United States military banking facility.
OVDP –Offshore Voluntary Disclosure Program
So what do you do if income earned on a foreign account has not been reported on a1040, nor any FBARs been filed?
The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool that helps the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
Voluntary Disclosure allows the IRS Criminal Investigation to take extenuating circumstances into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution. When a taxpayer truthfully, timely and completely complies with all provisions of the Voluntary Disclosure Practice, the IRS usually will not recommend criminal prosecution to the Department of Justice. OVDP expired in 2009, but has been renewed since.
Daszkal Bolton can assist a taxpayer with undisclosed or unreported offshore accounts or assets apply for pre-clearance from the IRS Criminal Investigation Lead Development Center. If a pre-clearance letter is issued, the taxpayer then submits a Voluntary Disclosure Letter that discloses substantial information regarding the offshore items and underreporting.
Those filing FBAR were granted a general exemption from mandatory electronic filing through June 30, 2013. Electronic Filing for FBAR Forms becomes MANDATORY on July 1, 2013.
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR.
CONTACT US: Daszkal Bolton can assist you in assessing your FBAR requirements, and gather the information needed to prepare your current and past due FBARs. If you are a taxpayer that has not been historically compliant, we can assist you in dealing with the IRS guidelines and possibly minimizing potential penalties if you qualify for the IRS Voluntary Disclosure Program. Penalties for FBAR violations can be stiff and may exceed the balance in the foreign financial account. Contact Mark Chaves, CPA, Partner-in-Charge of International Tax, at 561-367-1040 or [email protected]