Do you know your filing obligations if you have a foreign bank account? Most people don’t, and we are here to help!
The law of the land has always obligated United States citizens and residents to declare and pay tax on their worldwide income, regardless of where those earnings originated. Some taxpayers attempt to avoid or evade reporting income earned outside of the United States. This has caused quite a tax gap, and in an effort to bridge that gap, Uncle Sam has placed a few filing requirements on taxpayers that have a foreign bank account. The first is answering “yes” to the question on Form 1040, Schedule B, Part III and the second is filing FinCEN114, Report of Foreign Bank and Financial Accounts (FBAR).
Currently, the FBAR filing is due June 30, 2016 for the 2015 tax year, with no filing extensions. However, beginning the 2016 tax year, FBAR filings will be due April 15, with an option to extend the filing to October 15, the same due dates as individual income tax returns. FBAR forms are required to be electronically filed, regardless if filed April 15 or October 15.
An FBAR form must be filed if all of the following requirements are met:
- The filer is a United States person
- The United States person has a financial account
- The financial account is located in a foreign country
- The United States person has a financial interest in, or signature authority over the financial account
- The aggregate account balance of all foreign accounts exceed $10,000 (USD) at any point in time during the calendar year
If an FBAR isn’t timely filed for your foreign account, the IRS can impose civil and criminal penalties. Taxpayers will only be subject to criminal penalties if there is a willful violation to avoid or evade filing. This could mean up to five years in prison and a $250,000 fine. The civil penalties for a willful violation are the greater of $100,000 or 50% of the balance in the account at the time of the violation. The civil penalties for a non-willful violation could be up to $10,000 for each violation. Criminal and civil penalties can be imposed together. There a few options for delinquent or non-filers of the FBAR form.
The first option is the Streamlined Domestic Offshore Procedure. This option is best for non-willful taxpayers who have been United States residents and filed their income tax returns for the last three years. The IRS will impose a penalty of 5% on the assets reportable on the FBAR. You will need to file FBARs for the last six years and amended income tax returns for the last three years, if there is taxable income generated from the foreign accounts.
The second option is the Streamlined Foreign Offshore Procedure. This option is best for a non-willful United States taxpayer who was a nonresident for one of the last three years. There are no penalties imposed by the IRS, but you will need to file FBARs for the last six years and amended income tax returns for the last three years, if there is taxable income generated from the foreign accounts.
The third option is the Offshore Voluntary Disclosure Program. This option is best for a taxpayer that willfully chose not to file FBARs or if they have bad facts or account information. A penalty can be imposed ranging from 27.5% to 50% on the assets reportable on FBARs. The penalty amount will depend on where the taxpayer banked and if they acted willfully. You will need to file FBARs for the last eight years.
There are several factors used to determine if you acted willfully or non-willfully, what constitutes a foreign account, and what having a financial interest means. We can help you navigate through the murky waters and bring you current with you tax filing obligations. We work with some of the best tax attorneys in South Florida. Give us a call, and we’ll get you squared away with your foreign bank account filings.
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