If you have a foreign bank account or similar financial account, you may need to file an FBAR and other information returns. FBAR Compliance issues can be complex, especially when considering the best path for voluntary disclosure of delinquent FBARs. If you have questions about FBAR compliance, contact a Los Angeles tax attorney at Disparte Tax Law for a free consultation to discuss your questions regarding foreign financial asset disclosure issues.
FBAR Compliance Requirements
The term FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts. This form is not filed with your tax return, but is separately filed directly to the Treasury Department. The form 8938 is similar to the FBAR and must be filed with your tax return. The FBAR form must be filed electronically online through the BSA E-FilingSystem website.
Who must file an FBAR?
If you have an interest in, or signature or other authority over, foreign financial accounts that have an aggregate value exceeding $10,000 at any time during the calendar year, generally you must file an FBAR. In addition, you may need to file form 8938, Statement of Specified Foreign Financial Assets. You may want to consult a tax attorney to determine your FBAR filing requirements.
U.S. citizens and resident aliens generally must report any worldwide income, including income from foreign trusts, foreign businesses, foreign bank and investment accounts. Additionally, this potentially includes foreign retirement accounts. In most cases, if you have a foreign bank account you may need to complete and attach Schedule B to your tax return.
With certain exceptions, “United States persons” are required to file an FBAR if:
- the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
The term “United States person” includes: U.S. citizens; U.S. residents; entities such as 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.
Exceptions to the Reporting Requirement
There are several filing exceptions for the following United States persons or foreign financial accounts, including but not limited to:
- Certain foreign financial accounts jointly owned by spouses
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
What is a Foreign Financial Account?
The term foreign financial account includes, but is not limited to, the following types of accounts:
- Bank accounts such as savings accounts, checking accounts, and time deposits;
- Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts;
- Commodity futures or options accounts;
- Insurance policies with a cash value (such as a whole life insurance policy);
- Mutual funds or similar pooled funds; and
- Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.
The definition of foreign financial account is very broad. Often, you’ll need to do a case by case analysis to determine if you must include a particular account on the FBAR.
What Should I do if I haven’t filed the required FBARs?
If you haven’t filed an FBAR, you have options to become compliant and avoid steep penalties. Therefore, the delinquent submission program, voluntary disclosure program, or Streamlined Offshore Disclosure may be right for you. If the IRS initiates an examination of your return, the IRS could assess significant penalties for failure to file the FBAR. In addition, failing to file the FBAR and related information returns can stop the statute of limitations for audit and assessment. As a result, it is best to address the issue head on and work out a resolution before the IRS comes knocking on your door.
FBAR Compliance: Offshore Voluntary Disclosure Program
On January 9, 2012, the IRS reinitiated its Offshore Voluntary Disclosure Program after the closure of the 2011 and 2009 programs. The Offshore Voluntary Disclosure Program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR, form 8938, form 5471, form 3520 and 3520A.
Click here to read more about the streamlined filing compliance procedures.
The 2014 OVDP Program was officially closed in 2018. Consequently, taxpayers who have delinquent FBARs must consider the closure when determining which path forward best suits their particular situation. As a result, a taxpayer who has issues of FBAR compliance should consider a streamlined filing disclosure or a traditional voluntary disclosure.
What penalties could I face for failure to timely file an FBAR?
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation.
Contact a Los Angeles FBAR Tax Attorney Today
Contact a Los Angeles FBAR tax attorney at Disparte Tax Law today for a free consultation. We can explain your obligations and options pertaining to FBAR compliance.