Are you in compliance with the IRS rules regarding FBAR? The IRS amended the questions on the 2011 Schedule B of Form 1040. The 2011 form not only asks whether the taxpayer has a foreign trust or account, it asks whether the taxpayer has an obligation to file a foreign bank account report (FBAR). This new question is designed to educate taxpayers and explicitly put them on notice that they may be required to file an FBAR (even if they are not required to file Form 1040).
Who is required to file a FBAR? US citizens, US residents, and legal entities created in the US must file a FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. A foreign account is a financial account located outside of the US, even if the account is maintained at a branch of a US financial institution. An account maintained by a branch of a foreign bank that is physically located in the US is not a foreign financial account.
While the intent of FBAR may have been to identify taxpayers who were using foreign bank accounts to escape US tax reporting, its reach is much broader. Consider an immigrant or an emigrant who has left their country of origin and now resides in the US. He may have maintained an account with a financial institution in his country of origin or may have joint ownership with another person, such as a parent, that resides in the country of origin. While there may be no intent to avoid US taxation, they are subject to FBAR.
Taxpayers are required to file Form TD F 90.22.1 to report a financial interest in or signature authority over a foreign financial account. The FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. Taxpayers cannot obtain an extension of time to file.
Taxpayers may be subject to a civil penalty not to exceed $10,000 per violation. A taxpayer who is found to have willfully failed to file the FBAR may be subject to a civil penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. Willful violations may also be subject to criminal penalties.
In addition to the TD F 90.22.1 reporting requirement, the IRS also requires taxpayers to include Form 8938 with the filing of their tax return if they meet certain reporting thresholds. Those reporting thresholds are beyond the scope of this blog but can be found on the IRS website http://www.irs.gov/app/picklist/list/formsPublications.html?value=8938&criteria=formNumber&submitSearch=Find.
The requirements of reporting foreign held accounts also extend to a US taxpayer who is an owner or grantor of a foreign trust. That taxpayer must file Form 3520-A by the 15th day of the 3rd month after the end of the trust’s tax year.
