For United States citizens who have foreign bank accounts, there are several reporting requirements that come around within the time frame of tax time. These accounts are being aggressively monitored by the U.S. Treasury, to limit any potential abuses, including hiding income and assets from the traditional taxing system. Consult with your tax professional or accountant, such as Johnson, Johnson & Associates, Inc in Yeadon, PA, who can assist you in meeting these filing deadlines and requirements if they apply to your unique circumstances. But what prompted these new filing requirements?
The IRS has been aggressively pursuing taxpayers who have become involved in abusive offshore transactions. These are taxpayers that are trying to avoid or even evade U.S. income tax debt by hiding their income in offshore accounts or using various entities, even creating layers of entities. Additionally, taxpayers may attempt to evade taxes by using foreign debit cards, credit cards, foreign trusts, wire transfers, employee-leasing schemes, insurance plans or private annuities. All of these attempts are considered illegal.
However, the only way to prevent such abuses was to create a specific filing requirement focused on this particular aspect of the foreign bank accounts and investments. The Foreign Bank Account Report (FBAR) is a tool used by the IRS and the Department of Treasury investigators to trace funds that may have been used for illegal or illicit purposes, as well as to identify any unreported income that has been maintained or generated by a taxpayer abroad.
An annual FBAR must be filed with the Treasury whenever you as a taxpayer have an interest in or signature authority over a foreign financial account with a value of over $10,000 at any time during a calendar year. If the overall average of the account was below $10,000 or the account was closed during the year and funds were withdrawn, as long as there was a point of time when the account was above $10,000, then you will need to report it.
You will also need to report any foreign accounts if they hold non-monetary assets that have over $10,000 in value. This can apply to trusts, insurance policies and assets. If you have a life insurance policy over $10,000, for example, this will need to be reported because it is a non-monetary asset.
If you are a U.S. citizen and have a financial interest in or signature authority over at least one financial account located outside of the United States, then you will want to consult with your tax professional to determine your filing status.
Keep in mind that failing to meet the June 30th filing deadline can be severe. There is a minimum $10,000 penalty for failure to file accidentally. However, if you are found guilty of willfully choosing not to report, then the minimum penalty is $100,000 or at least half the value of the account in question, depending on which is greater.
Therefore, it is critical to consult with your tax professional to determine if your foreign assets meet the filing requirement and can assist you in filing your FBAR. So what do you need to include on your FBAR? It must contain the name and address of each financial institution in which you hold an account over $10,000, the account number, and the maximum amount that was held in the account during the year. Keep in mind that this must be filed by June 30th each year, but is not filed with the IRS. Instead, you will need to file it separately with the U.S. Department of Treasury.
There is an e-file system allows a filer to enter the calendar year and any past years through the online FinCEN Report 114. You can take advantage of the opportunity to explain why you are filing late for past years as well, or if the filing is being made in conjunction with the IRS compliance program.
There are some individuals that have received a filing deferral for those who have signature authority over various accounts, but no actual financial interest in the foreign financial accounts of their employer or a closely related entity that they may be working in behalf of. This extension goes until April 15, 2017.
As you can see, it is important to be sure that you meet all the filing requirements necessary if you have a foreign account to avoid any potential costly penalties and fines.
Johnson, Johnson & Associates, Inc.