SPECIAL NOTICE: Foreign Bank and Financial Accounts (FBAR)
With the June 30th deadline for filing fast approaching, many corporations, trusts, partnerships and individuals are unaware of a potentially costly oversight.
If you have signature authority or financial interest in any foreign financial account that meets the required thresholds, than you must account for this annually by filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR) with the IRS.
The requirement has existed for some time, but now enforcement and the “automatic” penalties for failure to file have become steep. Should you be required to file and fail to do so properly, you may be subject to a civil penalty of up to $10,000 per violation for violations that are not intentional and a penalty of the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation.
According to the IRS (www.irs.gov), a “United States person” must file an FBAR if that person has a “financial interest” in or “signature authority” over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year.
“United States person” is defined as:
- A citizen or resident of the United States;
- An entity created or organized in the United States or under the laws of the United States. The term “entity” includes but is not limited to, a corporation, partnership, and limited liability company;
- A trust formed under the laws of the United States; or
- An estate formed under the laws of the United States.
A common oversight is accounts held by a foreign subsidiary. Although a foreign subsidiary is not directly subject to the FBAR filing requirements, the U.S. parent is considered to have a financial interest in any foreign financial account owned by its foreign subsidiary, and must file the FBAR on such account(s).
Although the company has filed properly, many officers (individuals) fail to file on their own behalf and include any personal foreign accounts in the threshold tests. If you have been made a signatory over a foreign account, everyone must review all filing requirements. U.S. Citizens living abroad are not exempt from filing.
Another common mistake occurs when it is assumed there is no requirement to file because no single account ever exceeded $10,000 at the end of the year, or on monthly statement balances. The rule requires a person to “aggregate” all accounts “at any time” during the year. A single transaction on one day can result be being required to file. Once the threshold has been reached, “all” foreign accounts must be included – even ZERO balance accounts.
If you or any company that you have signatory responsibility for has any type of foreign financial accounts (this requirement is NOT limited to bank accounts), including securities, brokerage, savings, demand, checking, deposit, time deposit or other accounts that are maintained with a financial institution – it is not too late to file.