International Financial Law Prof Blog

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

Monday, June 20, 2016

Don’t Forget to Report Certain Foreign Accounts to Treasury by the June 30 Deadline

The Internal Revenue Service today reminded taxpayers who have one or more bank or financial accounts located outside the United States, or signature authority over such accounts Irs_logo that they may need to file an FBAR by Thursday, June 30.

By law, many U.S. taxpayers with foreign accounts exceeding certain thresholds must file Form 114, Report of Foreign Bank and Financial Accounts, known as the "FBAR." It is filed electronically with the Treasury Department's Financial Crimes Enforcement Network (FinCen).

"Robust growth in FBAR filings in recent years shows we are getting the word out regarding the importance of offshore tax compliance," said IRS Commissioner John Koskinen. "Taxpayers here and abroad should take their foreign account reporting obligations very seriously.”

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 2015. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-Filing System website.

In 2015, FinCen received a record high 1,163,229 FBARs, up more than 8 percent from the prior year. FBAR filings have grown on average by 17 percent per year during the last five years, according to FinCen data.

The IRS is implementing the Foreign Account Tax Compliance Act (FATCA), which mandates third-party reporting of foreign accounts to foster offshore tax compliance. FATCA created a new filing requirement: IRS Form 8938, Statement of Specified Foreign Financial Assets, which is filed with individual tax returns. The filing thresholds are much higher for this form than for the FBAR.

Professor William Byrnes of Texas A&M University's law school commented "In 2002, the IRS reported to Congress that the FBAR compliance rate was less than 20 percent because it had received fewer than 200,000 FBARs when one million taxpayers may have been required to file.  Then in 2013 the Taxpayer Advocate reported, relying on State Department statistics, that 7.6 million U.S. citizens reside abroad and many more U.S. residents have FBAR filing requirements for foreign accounts.  The Taxpayer Advocate noted that in Mexico alone, more than one million U.S. citizens reside, and many Mexican citizens reside in the U.S."

"Only 1.1 million FBARs from a potential class of between seven and ten million taxpayers with foreign asset exposure appears to me to be approximately a ten to fifteen percent compliance rate."  It may be that the IRS is putting a brave face on a bad situation that Congress needs to clean up through policy change or funding change?"

"Not every FBAR filer will also need to file a Form 8938, Statement of Specified Foreign Financial Assets, but many will.  Yet, Form 8938 filings only reached 300,000 for tax year 2014 (roughly the same as 2013), up from 200,000 for tax year 2011 - the first year of the form," continued Byrnes.

 For a detailed FBAR and Form 8938 enalysis, download my 118 page article.

FinCEN, Tax Compliance | Permalink


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