Everybody knows that April 15th is an important tax deadline. But there is another tax reporting deadline coming up that is not as well known: June 30th. This is the date by which all United States citizens must file a Foreign Bank Account Report (FBAR, Form TD F 90-22.1) with the Department of the Treasury to report offshore bank accounts.
That’s right, offshore bank accounts.
In recent years the IRS has aggressively pursued taxpayers involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities, or insurance plans.
To help prevent such abuses, the FBAR filing requirement was created. The FBAR is used as a tool to help IRS and Department of Treasury investigators trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.
An annual Foreign Bank Account Report must be filed with the Treasury whenever a taxpayer has an interest in, or signature authority over, a foreign financial account with a value over $10,000 any time during the calendar year. It makes no difference if the average amount in the account during the year is less than $10,000 or all the money is withdrawn by the end of the year. If the account held more than $10,000 any time during the year, the FBAR must be filed.
Moreover, the FBAR filing requirement is not limited to foreign accounts containing cash. You’re also supposed to file a FBAR if a foreign account has non-monetary assets of more than $10,000. For example, the cash surrender value of a life insurance policy is such a non-monetary asset.
What are the penalties for failing to file FBARs?
The penalties for failing to file FBARs are severe. There is a minimum $10,000 penalty if your failure to file was inadvertent. However, if you are found guilty of willfully not filing a FBAR, the minimum fine is $100,000 or half the value of the account, whichever is greater.
How do you file?
To file, you must complete the FBAR form, which is available from the IRS website. The FBAR 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 in the account during the year.
Is the Foreign Bank Account Report filed with my tax return?
The FBAR is not filed with your tax return. Instead, it must be separately filed with the Department of the Treasury by June 30 each year—in this case, filed means received by the Department of the Treasury, not placed in the mail.
When is the FBAR filing due?
The Department of the Treasury must receive your FBAR filing by June 30th each year. The instructions for filing are contained in the Form.
Where do I send the form?
You can file by mail to: The Department of the Treasury, Post Office Box 32621, Detroit, MI 48232-0621.
Or by express mail to: IRS Enterprise Computing Center, ATTN: CTR Operations Mailroom, 4th Floor, 985 Michigan Avenue, Detroit, MI 48226.
The FBAR can also be hand delivered to any local office of the IRS for forwarding to the Department of the Treasury.
Or can be delivered to the IRS’s tax attaches located in United States embassies and consulates for forwarding to the Department of the Treasury.
Does obtaining an extension to file income tax also extend Foreign Bank Account Report filing dates?
No, obtaining an extension to file your federal income tax returns does not extend the due date for filing a FBAR. You may not request an extension for filing the FBAR. If you don’t have all the information you need to file the FBAR by June 30, you should file as complete a return as you can and later amend the FBAR when the additional or new information becomes available.
Hotline to Help with questions about FBAR filing requirements is available! –a email to get it on the FBAR hotline at 800-800-2877. You can also submit written questions about the rules by email addressed to FBARQuestions@irs.gov.
How are Foreign Bank Account Report penalties calculated? FBAR penalties are calculated based on your account value, not on your income (note: with some FBAR mitigation guidelines, there is some relationship between income and penalty) . The problem for many taxpayers who haven’t filed FBARs is that they can incur up with extremely costly and disproportionate penalties.
For instance, if you have an account that is worth $200,000, the IRS, for one year, can asses a $100,000 FBAR penalty — for just one year. For two years, the Foreign Bank Account Report penalties could be equal to the actual total value of the account — completely wiping out its value. The IRS is not limited to assessing FBAR penalties for just two years; the IRS could potentially assess FBAR penalties for 6 or more years — putting taxpayers in a negative equity position.
So what can you do to avoid penalties?
If you are not under audit or investigation, you can use one of the voluntary disclosure programs available:
- Standard OVDP with 27.5% penalty: This is for people who may have some bad facts on their side. The standard 27.5% Offshore penalty, aka, in-lieu-of-FBAR-penalties, is applied once to the highest balance in the OVDP period.
- Standard OVDP with a 50% penalty: This is for taxpayers where the IRS has information already on your bank. A 50% Offshore Penalty will be assessed on highest aggregate balance within the OVDP period.
- Standard OVDP with opt-out: this is for taxpayers who feel their 27.5% penalty or 50% penalty is not reasonable and wish to contest the assessment of FBAR penalties under the normal assessment guidelines. A non-willful FBAR penalty or Penalty Warning Letter 3800 is the goal of any opt-out.
- Streamlined OVDP domestic: This is for people who live in the US and made non-willful mistakes and are willing to take a 5% penalty on one of the years highest year-end balance
- Streamlined OVDP offshore: This is for people who live outside the US and qualify for a 0% offshore penalty.
- FBAR only: If your foreign accounts had no unreported income you may be able to essentially file missing FBARs and not be penalized at all.
- Voluntary Disclosure: If your OVDP is denied because you are under investigation, it may be advisable to attempt to enter into a regular voluntary disclosure, or negotiate with the prosecuting authority, or at the minimum prepare for trial.
If you are under audit or investigation for unreported foreign account:
You may have criminal exposure, therefore, you need a legal protection with a firm that understands the intricacies of the Bank Secrecy Act of 1970 (BSA) and IRS administrative procedures. it is important to note that civil FBAR penalties can be in additional to criminal FBAR penalties, but that in order to collect civil FBAR penalties, the IRS must engage in FBAR litigation in federal court.
Either way, be aware that many taxpayers around the world, with situations that are probably similar to you, have found relief to their tax