May 29th 2011
Foreign Bank Account Reporting (FBAR) has been around for a long time (1970) but until recently has not been an area that was heavily enforced. The IRS has offered multiple voluntary disclosure programs in an effort to obtain taxpayer compliance. Therefore, since we know the IRS is hot on the topic, we as practitioners need to make sure our clients are in compliance.
What is FBAR? FBAR is a requirement for United States citizens, residents and persons doing business in the United States to file a Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts) with the US Treasury if the person has a financial interest in or a signatory authority over a financial account in a foreign country, if the aggregate value of the financial account exceeds $10,000 at any time during the year.
In this context, a person is considered a citizen or resident of the United States, a domestic partnership, a domestic corporation or a domestic estate or trust.
The types of accounts deemed to be financial accounts subject to FBAR generally are any type of account that holds liquid assets or marketable securities. Thus, everything from a cash account to a foreign mutual fund, such as an exchange traded fund, is classified as a financial account. Additionally, only accounts located in a foreign jurisdiction are subject to FBAR reporting.
Having the power of signature or other authority over a foreign financial account has the ability to subject unsuspecting taxpayers to the reporting requirement. If an individual can order the distribution or disbursement of funds or other property from the institution where the funds or property are maintained, by signing a document providing such direction (or in conjunction with one other person signing the document), that individual has signature authority over the financial account.
Individuals serving as shareholders, partners, and trustees also may be deemed to hold a financial interest in an account if the account is owned by or the individual with legal title is any of the following:
(1) A person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person
(2) A corporation in which the U.S. person owns more than 50% of the total stock either directly or indirectly
(3) A partnership in which the U.S. person owns an interest in more than 50% of the profits
As you can see, in order to properly ascertain whether or not your client has a filing requirement is not an easy task. Additionally, as we all know, clients don’t tell us everything, often times not intentionally but rather they “didn’t think it mattered.”
Once you have determined that your client has a filing responsibility, you have to remember the Form TD F 90-22.1 is due June 30. There are no extensions for this form and it is filed separately from the income tax return. Even though the filing of this form has no income tax implications, the civil and criminal penalties for not filing are severe and potentially very costly. Therefore, it is imperative as tax professionals that we put our clients on notice about this filing requirement and obtain the proper information to file the form correctly and timely.