Reporting Foreign Bank Accounts to the IRS
Reporting foreign bank accounts is one filing requirement which has created more international press, bad publicity for Swiss banks and sleepless nights for thousands of US citizens and resident aliens. What was once almost totally ignored, the FBAR – Foreign Bank Account Report – now demands attention. The IRS has collected in excess of $5 Billion in back taxes and penalties for those who failed to meet their annual filing obligations.
2013 marked the first year the IRS and FINCEN [the Financial Crimes Enforcement Network] required these forms be filed electronically. Paper returns are no longer accepted and mailing them to FINCEN fails to meet your filing requirement with the government. The severe penalties for failure to file are noteworthy. The old paper form previously titled, Form 90-22.1 has changed to Form 114 which is now filed via electronic means.
While the method and forms have changed, what must be reported to the IRS has not. Financial accounts held outside the United States fall under its reporting jurisdiction. Figuring out whether a particular account qualifies generates enough confusion. But if you have the ability to sign or move money in the account regardless of whether you have any ownership in the account, you must report it.
The IRS provides a reference guide for Foreign Bank Account reporting along with a number of helpful suggestions and resources. Go to http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-ForeignBank-and-Financial-Accounts-FBAR for extensive technical information. If you are looking for guidance and a common language explanation, we offer these support services.
If you have not filed FBARs in prior years but were required to, you should not panic. The first step is to determine IF you have a problem. If you are in a situation where you always reported any income from the foreign accounts but failed to file the FBAR, you may be able to avoid all penalties. However, it is important to obtain experienced assistance to guide you through this complex area of practice. If you have filed FBARs in the past but you discovered you missed reporting one or more accounts, we can help resolve the reporting error via amended returns.
One very common type of account that is often not included on the FBAR is a retirement account that a taxpayer contributed to in a foreign country but has never taken any distributions. Typically we see this when the taxpayer has moved to the USA but is still years away from his or her retirement age. Since the money can’t be touched, people don’t think of it as a foreign account. Often this account must also be included on the taxpayer’s Form 1040 [Form 8938 – Report of Foreign Financial Assets].
For those who have not properly reported their world-wide income on US tax returns nor filed their FBARs as required, the IRS has a program that offers a path to forgiveness in exchange for full disclosure of your unreported income and accounts. The IRS assesses penalties, interest and taxes going back up to eight years. This program is called the Overseas Voluntary Disclosure Program [OVDP].
The decision whether to enter this voluntary program is a challenging one and the taxpayer(s) should obtain qualified legal counsel or seek the advice of experienced professionals. While the OVDP program offers a path to avoid criminal prosecution and very onerous penalties, you must first be accepted into the program.
The OVDP program has created its share of outrage and discussion. One issue with the program is it lacks any consideration to the extent the taxpayer failed to comply with the law. For example, a person who inherited a foreign bank account worth $50,000 is penalized and dealt with in the same manner as a person who deliberately hid millions of dollars in offshore accounts while evading US income taxes.
Foreign Bank Account Reporting Requirements Update
UPDATE ON ANNUAL FILING DUE DATE
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued its annual reminder of the due date for filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report foreign financial accounts held in 2017.
FinCEN noted the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, changed Form 114’s due date to April 15 to coincide with the due date for filing federal income tax returns.
The reminder also noted that this year’s due date is April 17, 2018. This is the same due date for individual federal income tax returns because April 15 is a Sunday and April 16 is a holiday in the District of Columbia.
The legislation changing the FBAR due date also provides for an automatic six-month extension for filing the form to Oct. 15, 2018. FinCEN again explained that filers did not have to do anything to take advantage of the extension and need only file the return by Oct. 15 to comply.
Taxpayers who have a Form 114 filing requirement must file electronically on FinCEN’s Bank Secrecy Act (BSA) E-Filing System website.
Failure to file a required Form 114 incurs penalties beginning at $10,000 and may subject the taxpayer to potential criminal charges.
Many taxpayers are unaware of the many types of accounts that must be included in the report including:
· various crypto-currencies
· foreign life insurance
· foreign annuities
· direct ownership of foreign stocks or bonds
· foreign investment accounts
One of the most commonly missed items are retirement accounts that were generated while the taxpayer was working in a foreign location and often is forgotten about.