International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Thursday, June 25, 2015

Five Days Left! File FBAR Report (Foreign Bank and Financial Accounts) to FinCEN by June 30 or Pay Large Fines

The Internal Revenue Service reminds all US persons who has one or more bank or financial FINCENaccounts located outside the United States, or signature authority over such accounts, that they may need to file an FBAR by next Tuesday, June 30.

FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, which must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department. It is not a tax form and cannot be filed with the IRS. The form must be filed electronically and is only available online through the BSA E-Filing System website.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2014. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them.

FBAR filings have surged in recent years, topping the one-million mark for the first time during calendar-year 2014. The FBAR requirement is separate from the requirement to report specified foreign financial assets on a U.S. income tax return using Form 8938

FBAR Civil Penalties

A civil penalty up to $10,000 may be imposed by the IRS upon a U.S. person per incidence of non-compliance with the FBAR filing requirements although the IRS may waive the penalty when there is reasonable cause for the non-compliance and the FBAR properly reports the balance held in a foreign account.  However, where the IRS determines willfulness for the FBAR non-compliance, it may increase the civil monetary penalty to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.

According to the Government Accountability Office (GAO) Report of 2013 regarding the application of FBAR civil penalties, small financial accounts with balances of less than $100,000 and that over a six year period had only an average of $103 tax owing (which equates to $17 a year additional tax revenue), the IRS imposed a FBAR penalty of $13,320 (i.e. $2,220 a year).  The twenty-fifth percentile paid on average a $5,945 FBAR civil penalty for an average annual $277 tax understatement.  The median FBAR civil penalty imposed was $17,991 a year for a median $2,125 a year tax understatement.  The GAO analysis found that taxpayers with the smallest non-reported foreign financial accounts (i.e., those in the tenth percentile with accounts of $78,315 or lower) paid FBAR penalties as high as 575 percent of the actual tax, interest, and tax penalty owed.

Who is considered an individual FBAR filer? 

An individual FBAR filer is a natural person who owns a reportable foreign financial account or has signature authority but no financial interest in a reportable foreign financial account that requires the filing of an FBAR for the reportable year.

An individual who jointly owns an account with a spouse may file a single FBAR report as an individual filer for that joint account.  However, the FBAR instructions state that a spouse included as a joint owner, who does not file a separate FBAR, must also sign the FBAR.  This is not possible with FinCEN’s BSA E-File system capability because it only allows for one digital signature. In this situation, FinCEN allows the spouses to designate, using Form 114a, which spouse will be designated as the FBAR signatory on the behalf of both.

IRS FBAR on demand webinar

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