Foreign Bank Account Reporting (FBAR) requirements - Due June 30

Foreign Bank Account Reporting (FBAR) requirements - Due June 30

If you own or have authority over a foreign financial account, then you may be required to report the account yearly to the Internal Revenue Service. Each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR), if

1. The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country, and
2. The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Definition of Terms:

A “United States person” includes a citizen or resident of the United States, or a person in and doing business in the United States. Whether a person is considered, for FBAR purposes, to be in, and doing business in the United States is determined based on an analysis of the facts and circumstances of each case.

A “foreign country” includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

A “financial account” includes any bank, securities, securities derivatives or other financial instruments accounts. The term includes any savings, demand, checking, deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution. Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

The “maximum value of account” is the largest amount of currency and non-monetary assets that appear on any quarterly or more frequent account statements issued for the applicable year.

Reporting and Filing Information:

A person who holds a foreign account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on Form 1040 Schedule B, and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder’s reporting obligation.

A foreign account holder must mail the Form TD F 90-22.1 so that it is received on or before June 30 of the following year to:

U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621.

The FBAR is not to be filed with the filer’s Federal income tax return. Postmark dated June 30 is not considered to be filed on time. The Form must be received by June 30th.

The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing the FBAR.

Penalties:

IRS has announced that it intends to vigorously enforce penalties for non-comliance.

The maximum penalties for failure to file are as follows:

Civil Penalties:
$10,000 for non-willful noncompliance
$100,000 or 50% of the amount of underlying accounts balance at the time of the violation if determined to be willful

Criminal Penalties:
$250,000 fine and 5 years imprisonment
$500,000 fine and 10 years imprisonment if in tandem with any other US law

If you fail to file the form in time:

Taxpayers who failed to file FBARs but have properly reported and paid taxes on all taxable income will not be penalized if they properly file them and attach a statement explaining why the report or reports are late. They should do so without using the voluntary disclosure process. Rather, they should send copies of the delinquent reports, along with copies of tax returns for all relevant years, to the Philadelphia Offshore Identification Unit, a dedicated administrative office established by the IRS under the program.

Voluntary Disclosure:

Delinquent taxpayers may want to use the IRS’ Voluntary Disclosure program that runs until September 23, 2009 to catch up on past years’ failures to report accounts and/or related income and reduce certain penalties and risks of criminal prosecution by the IRS Criminal Investigation (CI) division. For qualifying voluntary disclosures, the Service will look back six years and require taxpayers to file or amend returns as necessary. Taxpayers under civil examination are not eligible to make a voluntary disclosure under the program, whether the examination relates to undisclosed foreign accounts or entities.

A United States person can own foreign accounts. The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the IRS identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad

Manendra Kothari.