What is a FBAR Financial Filing Requirement and Who Must File the Form Annually?

 

Understanding a FBAR:

FBAR is an acronym for a Foreign Bank and Financial Account Report. It is a financial filing requirement which individuals with foreign assets must report annually by the April 15 deadline (the same day as the standard IRS filing deadline). Individuals are allowed an automatic extension to October 15 if they fail to meet the FBAR annual due date of April 15 (additionally, individuals should be aware that this is a relatively new deadline that went into effect in 2015 — with the previous deadline being at the end of June). However, though FBAR filing is of utmost importance for relevant individuals with foreign financial holdings, the complexities concerning who must file, how they must file, and what the ramifications could be for not filing are frequently not well known.

FBAR refers to financial Form 114, also known as the Report of Foreign Bank and Financial Accounts. Said form must be filed each year with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department. The form must be filed electronically, and is only available online through the BSA E-FilingSystem website. 

Who is required to file a FBAR? 

Taxpayers with an interest in, or signature, or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the current tax year (2019) are generally required to file the FBAR reporting form. Essentially, if you have financial accounts outside of the U.S. that exceed $10,000 you could face a penalty for failing to file a FBAR. 

The IRS encourages taxpayers with foreign assets, even individuals with relatively small amounts, to check if they have a FBAR filing requirement. Separately, certain taxpayers living abroad may also have to file the FATCA-related Form 8938 with their tax returns by the June 15 deadline. (Domestic filers may also be required to file Form 8938, which would have been due by April 15 with their tax returns.) However, investors should be aware that the FBAR filing requirement is not part of filing a tax return. The FBAR Form 114 is filed separately and directly with FinCEN (Financial Crimes Enforcement Network).

FBAR filings have risen dramatically in recent years as FATCA (Foreign Account Tax Compliant Act) phases have become common knowledge and other international compliance efforts have raised awareness among taxpayers with offshore assets. According to data from FinCEN, FBAR filings exceeded 1 million for the first time in calendar year 2014, and rose nine of the last 10 years from about 280,000 back in 2005. With that in mind, investors with any foreign accounts should remain vigilant when it comes to FBAR rules and regulations, and the requirements which mandate filing the form, as they can often change from year-to-year. 

According to the IRS.gov website, “The FBAR and FATCA filing requirements by the IRS make it tougher for that relatively small number of taxpayers trying to hide assets and income offshore,” said IRS Commissioner John Koskinen. “Taxpayers are encouraged to review the rules and disclose their offshore assets.”

Specific criteria that must be met to be required to file a FBAR:

In addition to the foreign financial holdings criteria mentioned above, there are additional factors that need to be considered when determining whether or not you are required to fine an annual FBAR. 

(1) Are you a United States Citizen?

This is defined as any person that is a United States citizen or tax resident, and includes individuals, corporations, partnerships, trusts or estates, joint stock companies, associations, syndicates, joint ventures, other unincorporated organizations or groups, Indian Tribes, and all entities recognized as legal personalities (including single-member LLCs that are otherwise disregarded for tax purposes).

(A) Is There a Financial Interest, Signature or Other Authority?

There are two requirements for an account to be considered a reportable account on the FBAR:

The first requirement is that there must be a financial interest, signature authority, or other authority over the financial account.

A U.S. person has a financial interest in each account for which such person is the owner of record or has legal title, whether the account is maintained for his own benefit or for the benefit of others including non-U.S. persons. Sometimes an individual may not be the legal account holder but may have an indirect financial interest in the account. 

As an example: If you send a relative $25,000 in Canada to open up an investment account and deposit the money for him. The relative opens the account in his name, but the money clearly belongs to you. Hence, you have an indirect financial interest in that account and must report it on the FBAR. Any income earned from that account must also be reported on your U.S. income tax return.

Another common scenario involves an overseas parent opening an account in a foreign country and including their U.S. resident son or daughter as a legal account holder. This is common practice in some Asian countries. Such countries might not have a reliable probate system and the only way to ensure a seamless transfer of inheritance upon death is to include the future beneficiary on the account. This creates a FBAR filing requirement for their U.S. resident son or daughter. However, any income from these accounts may not need to be reported on the child’s tax returns if there is no current beneficial ownership.

A person is considered to have signature authority over an account if the person can control the disposition of assets in the account by direct communication with the institution with whom the account is maintained.

(B) The second requirement is that the foreign account must be a bank, securities, 

or other financial account.

(3) Are the Accounts Above the Threshold for Filing an FBAR?

If the aggregate value (total value) of all reportable accounts exceeds $10,000 at any point in the calendar year, all foreign financial accounts must be reported.

Example: David has five foreign bank accounts. The highest total value of all accounts was on July 1, 2016. On this date Bank A had $1,000, Bank B had $3,000, Bank C had $0, Bank D had $5,000, and Bank E had $2,000, resulting in a total value of $11,000. Therefore, David has a FBAR filing requirement with respect to all five of his foreign bank accounts.

Filing a FBAR individually:

Should you choose to file a FBAR without the assistance of an attorney, there are four key steps of you need to be aware.

Step 1 – You’ll need to go to this page to begin the filing process. Note that there are two different pages to start the FBAR filing process, and you’ll want the one that says “Individual” on it. The other page is for tax professionals such as the attorneys at Abajian Law, who can also file the FBAR on your behalf.

Step 2 – Next, you’ll need to meticulously and honestly fill out each section in the FBAR form with the pertinent information.

Step 3 – Once that’s done, you’ll need to return to the original page you accessed to start the FBAR preparation process, and proceed with following the link for FBAR submission.

Step 4 – Finally, submit your FBAR and receive your BSA confirmation number. You’ll want to record that number to prove that you did in fact make your submission, and keep it in a safe place. You may have to reference the confirmation number in the event that you need to amend your FBAR at a later date.

Penalties for not filing a FBAR:

As the Internal Revenue Service continues to increase their enforcement of offshore and foreign asset compliance, an increasing number of people are facing audits and being assessed FBAR penalties.

FBAR Penalty Structure:

The IRS imposes three different levels of FBAR civil penalties (though rarely criminal penalties) for failure to file a FBAR, depending on the severity of the non-compliance.

(1) Negligence

Under 31 USC 5321(a)(6)(A), a negligence penalty up to $500 may be assessed against a business for any negligent violation of the BSA, including FBAR violations. The simple negligence penalty applies only to businesses, not individuals. If any trade or business engages in a pattern of negligent violations of any provision (including the FBAR requirements) of the BSA, a civil penalty of not more than $50,000 may be imposed. This is in addition to the simple negligence $500 penalty. The examiner is given discretion to determine the penalty amount up to the $50,000 ceiling.

(2) Nonwillful FBAR Violations

Under 31 USC 5321(a)(5)(B), a penalty, not to exceed $10,000 per violation, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements. The penalty should not be imposed if the violation was due to reasonable cause, and the person files any delinquent FBARs and properly reports the previously unreported account.

The $10,000 penalty for a non-willful violation may be assessed per account.

(3) Willful FBAR Violations

Under 31 USC 5321(a)(5)(C),  a penalty for a willful FBAR violation may be imposed on any person who willfully violates or causes any violation of the FBAR filing and recordkeeping requirements. The statutory ceiling is the greater of $100,000 or 50% of the balance in the account at the time of the violation. There may be both a reporting and a recordkeeping violation regarding each account. Examiners may recommend a penalty that is higher or lower than 50 percent of the highest aggregate account balance of all unreported foreign financial accounts based on the facts and circumstances. In no event will the total penalty amount exceed 100 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination.

Do I need a FBAR tax lawyer?

There is no specific title designating a FBAR tax attorney, per se. Attorneys who handle FBAR filings are essentially specialized tax attorneys. But, of course, some attorneys have much more experience in that particular area of the law than others. And, technically, you do not need to hire a lawyer to file a FBAR if you’re compliant. 

However, if you’ve never filed a FBAR (or haven’t done so in many years), or have unreported foreign income and failure to disclose foreign financial assets on Form 8938, you absolutely need a California FBAR tax attorney in that case.

The average cost for hiring a FBAR attorney is between $5,000 and $12,000, depending on the complexity of your case. Therefore, it’s critical that you hire the right FBAR lawyer to handle your FBAR filing. Choosing the best FBAR tax lawyer in the Los Angeles, CA, area can be an exhaustive and arduous process requiring extensive research and time-consuming consultations. The most important factor to consider is the amount of experience a particular tax lawyer has had for FBAR filing over the years (and their overall success rate and client satisfaction). 

At Abajian Law, Mr. Abajian represents dozens of taxpayers who are voluntarily disclosing to the IRS over $250 million in offshore bank accounts, assets, and related income tax liabilities. Mr. Abajian also represents a number of taxpayers who are being criminally investigated by the Department of Justice for failure to report foreign bank accounts and income earned on those accounts. He also represents several clients in sensitive civil audits before the IRS that involve offshore bank accounts and assets. In other words, Mr. Abajian and his team of highly experienced and qualified FBAR tax attorneys are experts in all areas of this highly specialized area of the law, and are capable of handling any case you present, regardless of your particular situation. 

The Abajian Law team has dealt with a variety of circumstances from clients with innocent inheritances they were unaware of, to clients facing harsh criminal sanctions for flagrant and willful violations of the law. As many satisfied clients can attest, we believe we have perfected the complexities and intricacies of getting into compliance with the government. We can help you rest easy again and help you repatriate your foreign properties to utilize the vast opportunities in the modern business climate.

To arrange for a free consultation, visit the contact section on our website or call 818-396-5059. We look forward to serving you and exceeding your expectations.