Late Tax Returns
Houston Tax Attorney
There are many advantages of having a foreign bank account, such as convenience, hedging against currency risk, etc. For U.S. persons, those advantages have to be weighed against the reporting requirements. Our laws require most foreign bank accounts be reported. There can be stiff civil and criminal penalties for failing to do so.
The Foreign Bank Account Reporting Laws
The Bank Secrecy Act authorized the Federal government to track and establish reporting requirements for U.S. persons with interests in foreign bank accounts. The Treasury issued the following regulations governing how foreign bank accounts are to be reported:
- 31 U.S.C. § 5314 for reporting requirements,
- 31 U.S.C. § 5321 for civil penalties, and
- 31 U.S.C. § 5322 for criminal penalties.
These laws generally apply to U.S. persons with interests in foreign bank accounts. The term “U.S. persons” includes U.S. citizens or residents and domestic corporations, partnerships, trusts, and estates. IRA owners and beneficiaries, trust beneficiaries, and U.S. military banking facilities are exempt from these requirements.
The term “foreign bank accounts” refers to accounts maintained with financial institutions located in foreign countries. This includes any bank accounts, mutual funds or similar pooled funds, securities derivatives, annuities or insurance policies with a cash value, and other financial instruments. This can also include an interest in a corporation if the U.S. person owns directly or indirectly more than 50% of the total value of stock, an interest in a partnership if the U.S. person owns interest in more than 50% of the profits, and an interest in a trust if the U.S. person has beneficial interest in more than 50% of assets or receives more than 50% of current income.
The “interests” that are subject to reporting include accounts that are owned by U.S. persons and accounts that a U.S. person has signature authority for. A person has signature authority when he or she can control the disposition of money or other property in an account by delivery of a document with his signature to the financial institution maintaining the financial account.
Foreign Bank Account Oversight and Enforcement
The Federal government also set up the Financial Crimes Enforcement Network (FinCEN), which has primary authority over foreign bank account reporting. The enforcement for foreign bank account reporting has been delegated to the IRS.
The Foreign Bank Account Report Requirements
The laws require U.S. persons with interests in foreign financial accounts report the accounts using FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR). This reporting requirement applies when the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. This is true even if the account produces no taxable income during the year.
FBAR Penalties and Disclosure
The amount of FBAR penalties has recently changed. For penalties assessed after Aug. 1, 2016, the amount is $12,459 for non-willful violations and $124,588 or 50% of the balance in the account at the time the filing was required to have been made. For penalties assessed prior to this, the amount was $10,000 for non-willful violations and $100,000 or 50% of the balance in the account at the time the filing was required to have been made. The penalties do not apply to non-willful violations where the non-filing is due to reasonable cause.
The IRS has a number of programs for coming into compliance with the FBAR rules. This includes the offshore voluntary disclosure program, streamlined filing, and others. The rules associated with these programs have changed over the years, but the general trend is that the programs are less and less beneficial. Several IRS officials have opined that the programs will not be in place for much longer. If you have foreign bank accounts that need to be reported, it may be better to act sooner rather than later.
We help with FBAR reporting and penalties. Call us today to see how we can help with your FBAR problems.Am I Required to File a Tax Return?
Next post: Can I Correct a Tax Return Filed Several Years Ago?