Do you have financial interest in, or signature authority over a financial account in a foreign county? Is so, you may be required to file and report these accounts to the IRS. In recent years, the IRS has stepped up enforcement of the rules for foreign bank accounts and foreign assets. It is no longer optional to report information regarding your foreign accounts.

If you have a financial interest in, or signature or other authority over, any type of financial account in a foreign country, such as a bank account, stock, or mutual fund you may be required to report this to the U.S. government. Taxpayers use Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (known as the FBAR), if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. The instructions are fairly straightforward, asking for account numbers, taxpayer identification number, country in which the account is held and the like. The FBAR is due April 15th.

Failure to file the FBAR and disclose offshore accounts (including Canadian accounts) subjects the taxpayer to stiff penalties. In addition to penalties assessed on failing to report income for US tax purposes from these accounts, the IRS can assess penalties for simply failing to disclosure the existence of the accounts. Taxpayers failing to report their foreign financial accounts risk a civil penalty of $10,000. If the failure is willful, the penalty jumps to $100,000 or 50 percent of the account.

Please contact our office immediately if you believe you may be subject to FBAR reporting. We will be happy to assist you in complying with this IRS regulation.

Q. Who must file an FBAR?

A. Any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, (ie: bank account, stock or mutual fund) if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

Q. What is a foreign country?

A. A “foreign country” includes all geographical areas outside the United States, the commonwealth of Puerto Rico, the commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

Q. What is a United States person?

A. “United States person” includes a citizen or resident of the United States, a domestic partnership, a domestic corporation, and a domestic estate or trust.

Q. Is a single-member LLC, which is a disregarded entity for U.S. tax purposes, a United States person for FBAR purposes?

A. Yes, the tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement. FBARs are required under Title 31, not under any provisions of the Internal Revenue Code.

Q. What constitutes signature or other authority over an account?

A. A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.
Other authority exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.

Q. Is a U.S. resident with power of attorney on his elderly parents’ accounts in Canada required to file an FBAR, even if the resident never exercised the power of attorney?

A. Yes, if the power of attorney gives the U.S. resident signature authority, or other authority comparable to signature authority, over the financial accounts. Whether or not such authority is ever exercised is irrelevant to the FBAR filing requirement.

Q. How do filers report their accounts to the IRS?

A. Filers report their foreign accounts by (1) completing boxes 7a and 7b on Form 1040 Schedule B, box 3 on the Form 1041 “Other Information” section, box 10 on Form 1065 Schedule B, or boxes 6a and 6b on Form 1120 Schedule N and (2) completing Form TD F 90-22.1 (PDF).

Q. When is the FBAR due?

A. The FBAR is due by April 15 of the year following the year that the account holder meets the $10,000 threshold. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date.

Q. Is a single-member LLC, which is a disregarded entity for U.S. tax purposes, a United States person for FBAR purposes?

A. Yes, the tax rules concerning disregarded entities do not apply with respect to the FBAR reporting requirement. FBARs are required under Title 31, not under any provisions of the Internal Revenue Code.
If a filer does not have all the available information to file the return by April 15, they should file as complete a return as they can and amend the document when the additional or new information becomes available.

Q. How do I verify that my FBAR was filed?

A. Ninety days after the date of filing, the filer can request verification that the FBAR was received. An FBAR filing verification request may be made by calling 800-800-2877 and selecting option 2. Up to five documents may be verified over the phone. There is no fee for this verification.
Alternatively, an FBAR filing verification request may be made in writing and must include the filer’s name, taxpayer identification number and the filing period. There is a $5 fee for verifying five or fewer FBARs and a $1 fee for each additional FBAR. A copy of the filed FBAR can be obtained at a cost of $0.15 per page. Check or money order should be made payable to the United States Treasury.

The request and payment should be mailed to:

IRS Enterprise Computing Center/Detroit
ATTN: Verification
P.O. Box 32063
Detroit, MI 48232

Q. How does an FBAR filer amend a previously filed FBAR?

A. FBAR filers can amend a previously filed FBAR by:

Checking the Amended box in the upper right-hand corner of the first page of the form;
Making the needed additions or corrections;
Stapling it to a copy of the original FBAR; and
Attaching a statement explaining the additions or corrections.

Q. What happens if an account holder is required to file an FBAR and fails to do so?

A. Failure to file an FBAR when required to do so may potentially result in civil penalties, criminal penalties or both. If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. Keep copies of what you send for your records.

Q. Can cumulative FBAR penalties exceed the amount in a taxpayer's foreign accounts?

A. Yes, under the penalty provisions found in 31 U.S.C. 5314(a)(5), it is possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account.

Q. How long should account holders retain records of the foreign accounts?

A. Records of accounts required to be reported on an FBAR must be retained for a period of five years. Failure to maintain required records may result in civil penalties, criminal penalties or both.

Q. Does more than one form need to be filed for a husband and wife owning a joint account?

A. No, provided that the names and Social Security numbers of the joint owners are fully disclosed on the filed FBAR. A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner in Part III of the FBAR. The filer should write “(spouse)” on line 26 after the last name of the joint spousal owner. If the only reportable accounts of the filer's spouse are those reported as joint owners, the filer's spouse need not file a separate report. If the accounts are owned jointly by both spouses, the filer's spouse should also sign the report. It should be noted that if the filer's spouse has a financial interest in other accounts that are not jointly owned with the filer or has signature or other authority over other accounts, the filer's spouse should file a separate report for all accounts including those owned jointly with the other spouse.