Foreign Bank Account Reporting Due
June 30, 2009
In January 2003, the IRS announced an initiative to encourage the voluntary disclosure of unreported income by people who have used offshore payment cards or other offshore financial arrangements improperly to avoid paying taxes.
As a further tool to identify noncompliance, the IRS has expanded the scope, disclosure and penalties associated with the filing of Treasury Form 90-22.1, the Report of Foreign Bank and Financial Accounts. The revised form applicable to 2008 calendar year activity must be filed on or before June 30, 2009.
This filing requirement is separate from income reporting requirements. Filers, however, are also required to check a box on their income tax returns indicating whether they had a financial interest in a foreign account. The purpose of the Foreign Bank Account Reporting (FBAR) is to gather information about foreign accounts for government agencies such as federal and state law enforcement agencies.
Filing Requirements
Who: Each U.S. person who has a financial interest, signature authority, or other authority over foreign financial accounts, including bank, securities, or other types of accounts, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
When: The form must be delivered to the Department of Treasury on or before June 30 of the succeeding year.
[Note: The FBAR filing requirements can be complex to determine in many situations as some key definitional terms are not well defined. IRS has posted guidance on frequently asked questions to its website and established a FBAR hotline to assist taxpayers with filing requirements.]
Penalties
Failure to disclose this information can result in either civil or criminal penalties, or both.
The maximum civil penalty for non-willful failure to file is $10,000 and for willful failures is a fine up to the greater of (i) $100,000, or (ii) 50% of the amount in the account at the time of the violation (e.g. each annual failure to file).
The criminal penalties for willful failure to file is a fine up to $250,000, five years in prison, or both.
Summary of 2008 Reporting Requirements
Definition of U.S. Person
This term has been expanded and includes both individuals and entities that are U.S. citizens, U.S. residents, or any person “in or doing business in the U.S”. A U.S. Person includes:
- Entities that are disregarded for income tax purposes (such as single member limited liability companies) are not disregarded for FBAR reporting purposes and must file separately.
- Both the corporation and corporate employees with signature or other authority over the account have to file even if the employees have no personal interest in the account.
- Spouses may have to file separately.
- Foreign persons required to file a FBAR must now provide a foreign identification number.
Definition of Financial Interest
Any person who is the owner of record or has legal title on the account has a financial interest in the account whether or not the account is maintained for that person’s benefit or not. This includes persons appointed as a trust protector.
The owner of record or holder of legal title is:
- A person acting on behalf of the U.S. person such as an agent or attorney,
- A corporation in which the U.S. person owns, directly or indirectly, more than 50% of the total value of shares of stock or more than 50% of the voting power for all shares of stock,
- A partnership in which the U.S. person owns an interest in more than 50% of the profits or more than 50% of the capital of the partnership,
- A trust in which the U.S. person has a present beneficial interest, directly or indirectly, in more than 50% of the assets or receives more than 50% of the current income.
Expanded definition of Financial Accounts
This term has also been expanded and includes:
- Holdings in accounts in which assets are held in a commingled fund, and the account holder owns an equity interest in the fund ( such as certain offshore mutual funds),
- Debit and prepaid credit card accounts issued by a bank operating outside of the U.S.,
- Excluded accounts: individual bonds, notes, and stock certificates held by the filer are not a financial account.
Corporate Officers or Employees
A general reporting exception exists for a corporate officer or employee with signatory authority over a foreign financial account. It is available to publicly-traded corporations or corporations with assets exceeding $10 million and 500 or more shareholders of record, where the CFO has filed a Form TD F 90-22.1 and has advised, in writing, officers or employees having signatory authority of that filing that such form has been filed. This exception has now clearly been extended to corporate officers and employees with signatory authority over a foreign financial account of a 50 percent or greater owned domestic and foreign subsidiary of the U.S. parent where the CFO has made the Form TD F 90.22.1 filing and has advised, in writing, officers or employees of these subsidiaries of that filing.
Guidance for late filings
For taxpayers who reported and paid tax on all their taxable income for prior years but did not file required FBARs, the IRS will not impose a penalty for failure to file if the delinquent FBARs are filed by September 23, 2009.
