If you have an interest in or have signature authority over a foreign bank account or other financial accounts you may be required to file a Report of Foreign Bank and Financial Accounts (“FBAR”).
If the total value of all your foreign accounts exceeds $10,000 at any time during the year you must file the FBAR. The fact that the accounts generated little or no taxable income does not exempt you from filing a FBAR.
The report is filed electronically on FinCEN Form 114 and is due by June 30 of the year following the calendar year being reported. The filing of an extension for your income tax return does not extend the time to file the FBAR.
Reportable accounts include bank accounts, insurance or annuity policies with a cash value, brokerage accounts, and mutual funds. The Courts have held that online gamblers with web-based accounts that are licensed and regulated offshore are reportable accounts.
If you fail to file a FBAR you may be subject to both civil and criminal penalties. The civil penalty for a non-willful violation cannot exceed $10,000 per violation, while the penalties for a willful violation may not be in excess of the greater of $100,000 or 50% of the account balance at the time of the violation. This can result in a very substantial penalty. Criminal penalties for willful violations can be as high as $500,000, prison time of ten years, or both.
In addition to the FBAR filing requirement, you may be required to report certain foreign financial assets on your income tax return by completing Form 8938, Statement of Specified Foreign Financial Assets. The reporting threshold is higher than the FBAR requirement and depends on your marital status and whether you were living in the U.S.
For those taxpayers who have not filed required FBARs, the IRS has established voluntary disclosure programs that are meant to bring you into compliance by filing prior year’s returns, paying any taxes and interest due along with reduced or possibly even no penalties.
Call the CPAs at East Coast Tax Consulting Group today for the preparation of your FBAR return or help with determining the best course of action to take with unfiled FBARs.