Any U.S. persons with a financial interest in or signature authority over foreign financial bank accounts with aggregate balances exceeding $10,000 at any time during the year is required to report that information to the United States Treasury Department. The information is reported on a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) and must be received by the Treasury Department by June 30.
It is important to note that June 30, 2013, falls on a Sunday. It is advised that all forms be mailed in order to be received by Department of Treasury by Friday, June 28. There is no extension of time available to file the FBAR. If the information needed to file is not available by the deadline, a form should still be filed reporting the account. The form can later be amended to report the additional information.
The filing requirement applies if the total balances of all foreign accounts exceed the $10,000 threshold. If the balance in a specific account is below the $10,000 threshold, that account must still be reported if the aggregate of all foreign accounts exceeds the $10,000 threshold.
A U.S. person is defined as a citizen of the United States; a resident of the United States; an entity, including but not limited to, a corporation, partnership, trust, or limited liability company created, organized, or formed under the laws of the United States, any state, the District of Columbia, the territories and insular possessions of the United States, or the Indian tribes.
A foreign financial account is a financial account located outside of the United States. It does not matter if the bank is a foreign or a U.S. bank. Foreign accounts which are required to be reported include bank accounts, securities accounts and other financial accounts. Other financial accounts may include cash value insurance policies, futures or options accounts, and shares in mutual funds or other pooled funds.
A U.S. person has a financial interest in an account if they are the owner of record or holder of legal title. It does not matter whether or not the account is maintained for the benefit of that person or for the benefit of another person. An owner of record or holder of legal record can include an agent acting on behalf of the U.S. person, a corporation in which a U.S. person owned directly or indirectly 50 percent of the voting shares of the stock, a partnership in which a U.S. person owns directly or indirectly more than 50 percent of the profits or capital of the partnership, a trust in which the U.S. person is a grantor and has an ownership interest in the trust, and a trust in which a U.S. person has a more than 50 percent present beneficial interest in the assets or income of the trust for the calendar year.
A person has signature authority over an account if the person can control the disbursement of money by delivery of a document containing his or her signature to a bank or other person who maintains the account. Authority can also exist if the person has the power to authorize the disbursement of cash with direct communication to a bank or other person maintaining the account. This can mean orally authorizing the disbursement or doing so by some other means.
There are several exceptions to the reporting requirements. These include:
• certain accounts jointly owned by spouses;
• filers named in a consolidated FBAR;
• Correspondent/Nostro Account;
• governmental entities;
• international financial institutions;
• IRA owners and beneficiaries;
• participants in and beneficiaries of tax-qualified retirement plans;
• trust beneficiaries; and
• accounts maintained by institutions on a U.S. military installation
The failure to file penalties can be quite substantial. A person who is required to file an FBAR and fails to properly file can be subject to civil penalties of up to $10,000. A person who willfully fails to report a foreign account is subject to a civil penalty up to $100,000 or 50 percent of the balance of the account at the time of the violation. Willful violations are also subject to criminal penalties. If it is discovered that you failed to file a previous years FBAR, the FBAR should be filed immediately with an attached statement explaining the reason for the delinquent filing. The IRS can abate the penalties if it determines that the late filings were due to reasonable cause.
The filing requirements for the FBAR can get quite complex. As stated above the penalties for failing to file can be steep. If you believe you may be subject to the filing, please consult your tax advisor.
John Finocchario, CPA, is a manager in the tax department at Mengel, Metzger, Barr & Co. LLP. He may be reached at Jfinocchario@mmb-co.com.