By Nick Fiore
All taxpayers with bank or other financial accounts in a foreign country, or with signature authority over such accounts, may be required to report the accounts to the U.S. Treasury by June 30.
While there is nothing improper about setting up or maintaining these accounts, many people may mistakenly believe their accounts are not large enough, in total, to trigger reporting obligations. The truth is that foreign account owners may have to report their accounts to the government, even if the accounts do not generate taxable income.
U.S. persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Treasury Department Form TD F90-22.1, each year if they have a financial interest in, or signature authority over, financial accounts (including bank, securities or other types of financial accounts) in a foreign country, if the total value of these accounts is more than $10,000 at any time during the calendar year.
For 2010, the due date for filing the FBAR is Thursday, June 30, 2011. Unlike federal income tax returns, extensions of time to file FBARs are not available.
Note: There is an extended deadline, however, for certain financial professionals. Under Notice 2011-1, the deadline is extended until June 30, 2012 for:
- Employees or officers of covered entities with signature or other authority over (and no financial interest in) a foreign financial account of another entity more than 50% owned, directly or indirectly, by the entity (a controlled person).
- Employees or officers of a controlled person of a covered entity with signature or other authority over (and no financial interest in) a foreign financial account of the entity or another controlled person of the entity.
A FBAR is not an income tax return, and should not be mailed with any income tax returns. It is due by June 30 of the year following the calendar year in which the total value of the foreign accounts, on any one day, exceeds $10,000. For 2009 (and earlier years), the due date is generally November 1, 2011, for individuals whose filing deadlines were properly deferred and had no financial interest in a foreign financial account but with signature or other authority over that account.
All other U.S. persons required to file a FBAR this year must meet the June 30, 2011, filing date.
FBARs are filed with the U.S. Department of the Treasury, P.O. Box 32621, Detroit, Mich. 48232-0621.
Penalties. There may be both civil and criminal penalties for noncompliance with the FBAR filing requirements, and they may be significant. Civil penalties for a nonwillful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50 percent of the amount in the account at the time of the violation. Criminal penalties, for violating the FBAR requirements while also violating certain other laws, can range up to a $500,000 fine, 10 years imprisonment, or both. Civil and criminal penalties may be imposed together.
If a taxpayer determines that he or she was required to file FBARs for earlier years, the taxpayer should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. (Remember to keep copies of whatever information is sent to the Service.) If, however, the taxpayer has any unreported taxable income related to the foreign accounts, that taxpayer should instead follow the procedures for making a voluntary disclosure to IRS under the 2011 Offshore Voluntary Disclosure Initiative.
2011 Offshore Voluntary Disclosure Initiative. The IRS has set up a special voluntary disclosure initiative available through August 31, 2011, designed to help people with undisclosed income from hidden offshore accounts get current with their taxes.
Similar to a 2009 program, the 2011 program requires individuals to pay a penalty of 25% of the amount in the foreign bank accounts in the year with the highest aggregate account balance (from 2003 through 2010). (Note: Some taxpayers will be eligible for 5% or 12.5% penalties.) Participants also must pay back taxes and interest for up to eight years, as well as paying accuracy-related and/or delinquency penalties.
Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.
The IRS has launched a new section on www.IRS.gov that includes the full terms and conditions on the 2011 Offshore Voluntary Disclosure Initiative, including questions and answers to help taxpayers and tax professionals. The web site also includes details on how people can make a voluntary disclosure.
The address for delivery of an FBAR by a method other than U.S. mail is:
U.S. Department of the Treasury
Currency Transaction Reporting
985 Michigan Avenue
Detroit, MI, 48226.
The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms and instructions are also available on www.IRS.gov or FinCEN.gov (the Financial Crimes Enforcement Network website), and by calling 1-800-829-3676.
Taxpayers who need assistance completing Form TD F 90-22.1 can contact the IRS by telephone at 1-800-800-2877, option 2, or via e-mail at FBARquestions@irs.gov.