This newsletter serves as our annual reminder of the requirement to file Reports of Foreign Bank and Financial Accounts (“FBARs”). For calendar year 2014, FBARs are required to be filed on or before June 30, 2015. The form, which was formerly known as Form TD F 90-22.1, is now known as FinCEN Report 114.
U.S. persons (U.S. citizens and residents, including U.S. citizens who reside outside of the U.S. and foreign persons who reside in the U.S.) and domestic legal entities (i) with “foreign financial accounts” that in the aggregate exceeded $10,000 at any time during the prior calendar year, or (ii) that have signatory authority or other authority over such foreign accounts, are required to file an FBAR. FBARs must be filed on or before June 30th of the year immediately following the calendar year being reported (i.e., June 30, 2015, with respect to calendar year 2014). This form is not part of the U.S. person’s (or entity’s) tax returns and no extension is available for additional time to file the form. A number of questions may arise regarding who is required to file the form and with respect to which accounts.
“Foreign financial accounts” include, but are not limited to, foreign bank accounts, securities accounts, and mutual funds. “Foreign financial accounts”, however, do not include investments in foreign hedge funds.
Although FBAR filing is not part of a tax return filed with the IRS, Schedule B of Form 1040 does require an individual taxpayer to indicate if he or she has ownership of or signature authority over foreign financial accounts and if so whether FBAR reporting is required. (Forms for entities or trusts also have similar questions.) Form 8938, Statement of Foreign Financial Assets, may also be required to be filed with the 1040. Also, New York State tax returns generally have a question asking whether the taxpayer has an interest in a foreign account.
Significant penalties may be imposed for failure to file FBAR reports.
FBARS MUST BE ELECTRONICALLY FILED
The Financial Crimes Enforcement Network (“FinCEN”) has mandated that FBARs be electronically filed through the Bank Secrecy Act (“BSA”) E-Filing System. FinCen Report 114 is available online through the BSA website (http://bsaefiling.fincen.treas.gov). The electronic filing requirement also applies to late filers with respect to foreign accounts for prior years and participants in the offshore voluntary disclosure program (the “OVDP Program”).
Third-party preparers (such as attorneys and CPAs) can assist clients in the preparation and filing of the electronic FBARs. In order to electronically file FBARs, a third-party preparer must have Form 114a, Record of Authorization to Electronically File FBARs, signed by the client authorizing the preparer to file the FBAR on the client’s behalf. Third-party preparers and institutions must enroll with BSA in order to electronically file FBARs. There is no fee to enroll.
IMPACT OF FATCA
The Foreign Account Tax Compliance Act provisions of the United States Hiring Incentives to Restore Employment Act of 2010 (“FATCA”) generally require that foreign financial institutions report the ownership by U.S. persons of foreign accounts and investments to the IRS (or, if applicable, to non-U.S. tax authorities which would then report such information to the IRS). For 2014, which is the first year for which reporting under FATCA applies, reporting is generally due by June 26, 2015. We have issued a number of prior newsletters regarding FATCA. Reporting under FATCA may, and is intended to, make the IRS aware of unreported foreign accounts and investments, including non-compliance with FBAR reporting.
OVDP PROGRAM AND STREAMLINED DISCLOSURE PROGRAM
FBARs continue to receive significant attention from the U.S. government due to the number of previously unreported foreign accounts which have been disclosed to the IRS by foreign banks or through the OVDP Program. For taxpayers who have unreported foreign income or accounts for prior years, we can help you navigate the OVDP Program and the Streamlined Disclosure Program to determine your exposure regarding noncompliance with reporting requirements and the failure to pay taxes with respect to offshore accounts.