Foreign Bank and Financial Accounts Report (“FBAR”) is an annual report that provides the U.S. government with information regarding certain foreign financial accounts held by a U.S. person. Typically, a U.S. person who has a financial interest in or signature authority over at least one financial account located outside the United States and has an aggregate value of all foreign financial accounts exceeding $10,000 at any time during the calendar year is required to file an FBAR. Foreign financial accounts include, but are not limited to, securities, brokerage, savings, demand, checking, deposit, time deposit, or other accounts maintained with a financial institution, commodity futures and options, annuity and insurance policies with a cash value, and shares in a mutual fund or similarly pooled fund.
The FBAR annual due date is April 15th of each calendar year to coincide with the federal income tax filing season. In 2015, however, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Public Law 114-41) allowed an automatic six-month extension of the filing deadline. All filings, however, must be filed electronically through FinCEN E-Filing System.
U.S. Financial Crimes Enforcement Network or “FinCEN” is a bureau of the U.S. Department of the Treasury (the “Treasury”) entrusted to safeguard the financial system from illicit use and combat money laundering activities while advancing or promoting national security. Some of the enforcement authority of FinCEN has been delegated to the Internal Revenue Service (“IRS”). The IRS is responsible for investigating possible FBAR civil violations, assessing and collecting civil FBAR penalties, and issuing FBAR administrative rulings.
Most taxpayers are unaware that they may have a reporting obligation even when the foreign account produces no taxable income. Because, however, the Foreign Account Tax Compliance Act (“FATCA”) now requires certain financial institutions outside the U.S. to report accounts held by U.S. persons, the Treasury is in a better position to determine whether you have failed to file a required FBAR. Comparing FATCA information against filed or unfiled FBARs, the IRS is able to discover offshore accounts that may not have been disclosed. Accordingly, if the IRS determines you have failed to file a required FBAR or have been negligent in your report, you could face civil and criminal penalties.
U.S. persons, including employees who have signature authority over their employer’s foreign financial accounts, expats, and trustees of foreign trusts need to be cognizant of their filing requirements. Clients are reminded to review their financial arrangements to ensure FBAR compliance. Given the potential for civil and criminal penalties, it is always best to discuss FBAR issues with a licensed attorney so that you will have the benefit of the attorney-client privilege. Since the deadline is October 16, 2017 this year, it is important to act quickly to determine whether you are required to file a report. If you need further guidance regarding FBAR, FATCA or other reporting obligations, please contact Aaron Valenti at firstname.lastname@example.org or (408) 286-5800.