While the requirement to report the details of all foreign bank accounts, held by a taxpayer has existed for many years, many people continue to remain unaware of the need to comply and the penalties that can be imposed for failure to comply. However, the IRS has started to enforce “Foreign Bank Account Reporting(FBAR)” and for American Indians, who are classified as US residents, failure to report the details of all your offshore accounts can land you in a deep financial mess with penalties and severe punishments. This guide will help you understand how to file FBAR for the current and missed previous years.
Just as India has cracked on down black money and tax evasion, the US has been cracking down on tax evaders with compliance requirements such as FATCA, FBAR, etc. Foreign Bank Account Reporting (FBAR) requires US persons to report the details of all their foreign bank account details that are held abroad.
The filing of FBAR does not result in paying taxes on the money held abroad, however, non-reporting can cost you. The IRS simply requires US persons to report the details of all offshore accounts. The objective of FBAR is to uncover those cheating on their taxes by hiding their money in offshore accounts.
The due date for filing FBAR coincides with your yearly income tax return filing. FBAR must be filed by April 15th of every year, with a maximum six-month extension that can be availed.
Note: The current due date was April 17th 2018.
If you are a US person, that is a person considered as US tax resident (see below), including persons having signatory authority, and the total of all your foreign bank account balances exceeds the threshold limit of $10,000, at any point during the tax year, then FBAR filing is compulsory. So, this means that even if for one day your balance crosses over by $1, then you must file FBAR.
When filing your FBAR, it is important to declare more than just your foreign bank account balances. You will also have to report foreign:
To file a complete report of all your foreign bank account and asset details, submission of Form 8938 will also be required.
While the IRS has started enforcing FBAR compliance, filing is done with the Treasury Department. The report can be filed using the FinCen’s BSA e-filing portal yourself or enlisting a third party to prepare and file your FBAR. In case of joint accounts, and/or a third party is used to file FBAR, then the joint account holder would need to grant permission by filling Form FinCen 114a. Additionally, the details of foreign joint accounts and individual foreign accounts need to be filed separately.
If you have not filed FBAR, the Streamlined Filing Compliance Procedures makes it so that all penalties are waived for US taxpayers and only a 5% miscellaneous offshore penalty is levied on the financial assets held in foreign countries, for those living in the US.
In 2012, OVDP was made available again for taxpayers wishing to voluntarily disclose their income tax and foreign asset information. This program may close at any time, as per the wishes of the IRS.
For US taxpayers who are living abroad and have dropped out of filing their income tax returns every year diligently, the implementation of the Foreign Account Tax Compliance Act (FATCA) in 2014, makes it easy for the IRS to cross check the information provided by the foreign financial institutions against that of the taxpayer’s form 1040. Additionally, OVDP will also not be available at this juncture. Therefore, upon comparison by the IRS, if it is discovered that a US person has failed to report their foreign account and asset details, or has filed inaccurate reports, severe penalties can be levied including serving jail time.
While, it can be a tricky situation in determining who unknowingly failed to file FBAR, the fine for non-willful failure to file is $10,000 per violation. For those that knowingly did not file FBAR, the penalty can be either $100,000 or 50% of all the account balances at the determined time of the violation, whichever is lesser. Therefore, failing to file FBAR, which is only a reporting of all foreign account details, can result in costly penalties including criminal prosecution.
So, whether you have yet to file FBAR or need to file FBAR for this current year, enlist the aid of the U.S. Expat tax experts at H&R Block India, who will ensure all the details of your foreign accounts and assets are reported accurately and in a timely manner, so that there are no severe penalties levied.