Complying with Requirement to Report a Foreign Bank Account

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Persons from the United States who have a financial interest, as well signature authority, over a foreign financial account may have to report it annually to the Department of Treasury. Should their account be over a certain threshold, they may be required, by the Bank Secrecy Act, to file a Report of Foreign Bank and Financial Accounts (FBAR).

Who Must File

Individuals who have a signature authority or a financial interest in a minimum of one or more financial account located outside of the United States must file a FBAR. The value of one or more of these financial accounts must have been over $10,000 at some time during the calendar year. Persons from the United States required to file a FBAR include a United States citizen as well as United States residents. This requirement also includes limited liability companies, corporations, partnerships organized and created in the United States or in accordance with the laws of the United States. This requirement also extends to any estate or trust created under the laws of the United States.

Exceptions

There are certain exceptions when it comes to the FBAR filing requirements.

*Any type of financial account operating as part of a United States military banking facility.
*Certain types of foreign financial accounts that are owned jointly by a married couple.
*A United States person who is trust a beneficiary reporting an account when a FBAR is filed on behalf of the trust.
*A United States person who is part of a FBAR consolidated filing.
*A United States person who is a beneficiary of a retirement plan that is tax-qualified.
*A United States person who is a beneficiary or participant of a plan that is tax qualified.
*Any financial account being used by a governmental entity.
*Any foreign financial account being used by an international financial institution.

Determining Reporting Obligation

In certain situations, a United States person may be required to report a foreign financial account even if it produced no taxable income. The requirement to file a FBAR can be determined by answering questions about foreign accounts on a tax return. FBAR is a calendar year report. It is required to be filed on or before April 15. Beginning in 2013, the filing of a FBAR is required to be done electronically. The FinCEN’s BSA E-Filing System must be utilized.

Failure To File

FBAR Should a United States person be required to file an FBAR and not do it, they could be given civil monetary penalties. It is possible for the IRS to give a civil monetary penalty and that has been adjusted for inflation. The penalty should not exceed $12,400 for each violation that is willful and does not have a reasonable cause. A penalty could be over $124,500 or 50 percent of the balance in an account at the time of the violation.

Reporting any and all foreign bank accounts became a major issue in recent years. This is when the IRS began to pursue taxpayers who appeared to be engaging in abusive offshore transactions. Many taxpayers have attempted to evade or avoid paying income tax by hiding their funds in offshore bank accounts. There is no amount of income so small it is not worth reporting. It is always best to be in compliance. It is best to avoid the penalties associated with noncompliance for not reporting a foreign bank account.