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 U.S. residents or U.S. Nation, 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 year and missed previous years.
Just as India has cracked on down black money and tax evasion, the U.S. has been cracking down on tax evaders with compliance requirements such as FATCA, FBAR, etc. Foreign Bank Account Reporting (FBAR) requires U.S. persons to report the details of all their foreign bank account details that are held abroad (outside the U.S.).
The filing of FBAR does not result in paying taxes on the money held abroad. However, non-reporting can cost penalise you. The IRS simply requires U.S. 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.
Many U.S. persons maintain overseas financial accounts for legitimate reasons like convenience or easy access. However, some people may use it to hide their money from the tax authorities. So, the U.S. government uses it as a tool to identify unreported income generated or maintained abroad or traces funds used for unlawful purposes.
The due date for filing FBAR is with your yearly income tax return filing. FBAR must be filed by April 15th of the year following the calendar year being reported, or if you have taken an extension for your U.S. Tax Return, then the due date will be 15th October.
The FBAR filing deadline for the calendar year 2015 and the years prior to it was June 30, and no extension of due date was given. The government implemented the Surface Transportation and Veteran Health Care Choice Improvement Act of 2015 post which the due date was changed to April 15. The government also started giving a 6 months maximum extension of the deadline. Hence, you do not need to make specific requests for extension. But, if you do not have all the information necessary to file your return by the extended due date, you should file as complete a return as possible and amend the report when additional or new information becomes available.
Note: The current due date was April 17th 2018.
If you are a U.S. person, that is a person considered as U.S. tax resident (see below), including persons having signatory authority, and the total of all your foreign bank account balances & Foreign asset value 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 $10,000, then you must file FBAR.
There are some entities under the tax laws which although are U.S. persons by definition but disregarded for tax purposes. Such entities may be required to file FBAR. The federal tax treatment of the entity also does not affect its requirement to file an FBAR.
The FBAR return is not filed with the federal tax return. It is filed electronically through the BSA e-Filing system. Tax filers can use this system to quickly and securely file their return. Filers receive an acknowledgement of each submission.
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.
The following persons are exempt from filing the FBAR:
The following types of foreign financial accounts are exempt from the FBAR filing requirement:
In 2012, OVDP was made available again for taxpayers wishing to voluntarily disclose their income tax and foreign asset information following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offered people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfil their tax and information reporting obligations, including the FBAR. The program ended in September 2018.
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.
On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to those taxpayers who were non-residing in the U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.
On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States.
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA e-Filing system. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
|Violation||Civil Penalties||Criminal Penalties||U.S. Code sections|
|Non-Willful Violation||Up to $12,459 for each negligent violation||N/A||31 U.S.C. section 5321(a)(5)(B)|
|Willful – Failure to File FBAR or retain records of account||Up to the greater of $124,588, or 50 percent of the amount in the account at the time of the violation||Up to $250,000 or 5 years or both||31 U.S.C. section 5321(a)(5)(C); 31 U.S.C. section 5322(a); 31 C.F.R. section 103.59(b) for criminal. The penalty applies to all U.S. persons.|
|Willful – Failure to File FBAR or retain records of account while violating certain other laws||Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation||Up to $500,000 or 10 years or both||31 U.S.C. section 5322(b); 31 C.F.R. section 103.59(c) for criminal The penalty applies to all U.S. persons|
|Knowingly and Willfully Filing False FBAR||Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation||$10,000 or 5 years or both||18 U.S.C. section 1001; 31 C.F.R. section 103.59(d) for criminal. The penalty applies to all U.S. persons.|
Generally, a child is responsible for filing his or her own FBAR report. If a child cannot file his or her own FBAR for any reason, such as age, the child’s parent, guardian, or another legally responsible person must file it for the child.
If the child cannot sign his or her FBAR, a parent or guardian must electronically sign the child’s FBAR. In item 45 Filer Title enter “Parent/Guardian filing for child.”