Enforced by FinCEN, the Financial Crimes Network of the US Department of the Treasury, the FBAR requirement applies to US Persons with foreign financial accounts in which they own a financial interest, or foreign financial accounts over which they have signature authority, if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the year. (The aggregate value test of $10,000 is applied at any time during the year and is not measured as an average.)
Please note the following:
- FinCEN reporting is now only possible via electronic means through the Bank Secrecy Act (BSA) E-Filing System
- Individuals report electronically via FinCEN Form 114.
- Entities use the BSA electronic filing system.
- Form 114 is not part of the federal income tax return reporting process. Form 114 is due to FinCEN on or before June 30th of the year following the calendar year being reported. The electronic filing needs to be completed by 11:59 pm on June 30th
- When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR.
- The filing of Form 114 does not result in a tax liability to the filer; it is an informational disclosure requirement of the United States Department of the Treasury. However, failure to file may result in the imposition of penalties.
- Those required to file an FBAR and who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.
The definition of “US Person” includes U.S. citizens; U.S. residents; entities, including but not limited to corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
A “financial account” includes the following:
1) A securities, brokerage, savings, demand, checking, deposit, time deposit or any other account maintained by a financial institution (or other person performing the service of a financial institution);
2) A commodity futures or options account, an insurance policy with cash surrender value, an annuity policy with cash surrender value, shares in a mutual fund or similar pooled fund.
A foreign financial account is a financial account that is physically located outside of the United States.
The term “owner” includes direct or indirect ownership of more than a 50 percent interest (by voting power, share value, partnership profits, partnership capital, or beneficial ownership of a trust) in entities.
Please note: Under the authority of the Foreign Account Tax Compliance Act (FATCA,) the US Government has entered into intergovernmental agreements with foreign governments, under which foreign bank account information of US persons is provided to the US Internal Revenue Service. It therefore behooves all affected US persons to properly report such accounts using the FinCEN reporting system.
Executives of entities that are covered by the FinCEN reporting requirements should be aware that the reporting includes all foreign accounts over which they have signature authority. This could include signature authority over personal, corporate or any other accounts. The regulations clarify that signature authority is defined as the authority of an individual (alone or in conjunction with another individual) to control the disposition of the money, funds or other assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.
In light of the potentially significant penalties associated with non-compliance and the complexity of the filing requirements, please contact your FGMK tax advisor to review and discuss whether you have an FBAR reporting requirement. If you have any questions, please contact the author at firstname.lastname@example.org.
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