IRS Reporting Rules for Foreign Bank Accounts (FBAR)

Don't miss the annual FBAR deadline for reporting foreign bank accounts--the penalties can be severe.

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Everybody knows that April 15th is an important tax deadline. But there is another tax reproting deadline coming up that is not as well known: June 30th. This is the date by which all United States citizens must file a Foreign Bank Account Report (FBAR, Form TD F 90-22.1) with the Department of the Treasury to report offshore bank accounts.

That’s right, offshore bank accounts. In recent years the IRS has aggressively pursued taxpayers involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities, or insurance plans.

To help prevent such abuses, the FBAR filing requirement was created. The FBAR is used as a tool to help IRS and Department of Treasury investigators trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

An annual FBAR must be filed with the Treausry whenever a taxpayer has an interest in, or signature authority over, a foreign financial account with a value over $10,000 any time during the calendar year. It makes no difference if the average amount in the account during the year is less than $10,000 or all the money is withdrawn by the end of the year. If the account held more than $10,000 any time during the year, the FBAR must be filed.

Moreover, the FBAR filing requirement is not limited to foreign accounts containing cash. You’re also supposed to file a FBAR if a foreign account has non-monetary assets of more than $10,000. For example, the cash surrender value of a life insurance policy is such a non-monetary asset.

The penalties for failing to file FBARs are severe. There is a minimum $10,000 penalty if your failure to file was inadvertent. However, if you are found guilty of willfully not filing a FBAR, the minimum fine is $100,000 or half the value of the account, whichever is greater.

To file, you must complete the FBAR form, which is available from the IRS website. The FBAR must contain the name and address of each financial institution in which you hold an account over $10,000, the account number, and the maximum amount in the account during the year.

The FBAR is not filed with your tax return. Instead, it must be separately filed with the Department of the Treasury by June 30 each year—in this case, filed means received by the Department of the Treasury, not placed in the mail. The instructions for filing are contained in the Form. You can file by mail to: The Department of the Treasury, Post Office Box  32621, Detroit, MI 48232-0621. Or by express mail to: IRS Enterprise Computing Center, ATTN: CTR Operations Mailroom, 4th Floor, 985 Michigan Avenue, Detroit, MI 48226. The FBAR can also be hand delivered to any local office of the IRS for forwarding to the Department of the Treasury. Or, the FBAR can be delivered to the IRS's tax attaches located in United States embassies and consulates for forwarding to the Department of the Treasury.

Obtaining an extension to file your federal income tax returns does not extend the due date for filing a FBAR. You may not request an extension for filing the FBAR. If you don’t have all the information you need to file the FBAR by June 30, you should file as complete a return as you can and later amend the FBAR when the additional or new information becomes available.

Help with questions about FBAR filing requirements is available on the FBAR hotline at 800-800-2877. You can also submit written questions about the FBAR rules by email addressed to FBARQuestions@irs.gov.

 

by: , J.D.

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