Here at AGTax LLP we receive numerous calls on a daily basis regarding the Foreign Bank Account reporting form (FBAR), also known as the TDF 90-22.1. Due to recent changes in the acceptable filing methods for the FBAR, we thought it would be a good time to go over those changes in detail, as well as provide an overview of the filing requirements and penalties of the FBAR.
What has changed?
In order to reduce government costs, improve the efficiency of Financial Crimes Enforcement Network (FinCEN), and provide regulators with better and more timely access to important financial information, on June 29, 2011, FinCEN announced that all FinCEN forms should be electronically filed (with some exceptions). At the time the FBAR was granted a general exemption from mandatory electronic filing. However, as of July 1, 2013 it is mandatory to electronically file FBARs using the E-Filing System maintained by the U.S. Department of the Treasury’s FinCEN. This rule also applies to amendments of previously filed FBARs submitted by individuals or entities on or after this date.
This new requirement affects anyone who expects to file an FBAR on or before June 30, 2014 for reportable foreign financial accounts held during calendar year 2013, as well as anyone filing in future years. The mandatory electronic filing requirement also applies to anyone who submits an initial FBAR after June 30, 2013 for 2012 accounts or for accounts of any prior year, and is thus filing late. In addition, anyone who after June 30, 2013 submits an amendment to a previously filed FBAR that was filed either on paper or electronically must file the amended FBAR electronically.
Who must file?
A U.S. person, citizen, or resident and/or any entity organized under United States laws, is required to file an FBAR, using Form TD F 90-22.1, with the U.S. Treasury Department an must be received by June 30 of each year. This form is in respect to foreign financial accounts (Foreign bank and/or brokerage accounts, offshore mutual funds and pooled investments) that have a total value of more than $10,000 USD, and that the person had a financial interest in, or signature authority over, during the previous calendar year. AGTax advises that this form be taken care of in a timely and accurate fashion, as the penalties can be quite severe.
How to e-file
FinCEN has established a website-based E-Filing System to support the electronic filing of Bank Secrecy Act forms, including the FBAR. An FBAR filer (an individual, whether filing with respect to a financial interest in a foreign account or with respect to signature authority over a financial account on the filer’s behalf) must enroll in the E-Filing System by completing a registration process through FinCEN’s website. An FBAR filer which is an entity may designate a “Supervisory User” to serve as the primarily responsible user of the E-Filing System for the entity. By using the E-Filing System, FBAR filers will be able to track the status of their FBARs, receive confirmations of receipt by FinCEN, and view information regarding prior filings.
What are the penalties?
FinCEN considers the filing of mandated reports in paper format to be non-compliant with the electronic filing mandate, and can reject an FBAR submitted on paper after June 30, 2013 considering it as invalid. As of now, the BSA E-Filing agency has not stated anything regarding the penalties. However, the usual FBAR civil and criminal penalties mentioned below are applicable for e-filing as well:
• Civil penalty for failing to file an FBAR is $10,000 for each non-willful violation, applicable on each account for each year
• The penalty for willful violation is either $100,000 or 50% of the amount in the foreign account for each violation (whichever is higher)
• Criminal penalties for FBAR violations involve monetary penalties up to $250,000 and prison for up to five years. If another tax law is violated in addition to the FBAR violation, the penalties could be raised to $500,000 and ten years in prison.
AGTax has found through inquiring with the BSA E-filing agency that, at present, the electronic filing system does not ask why an FBAR is being filed late nor does the e-filing software support the capacity to attach a letter or statement explaining why the FBAR is being filed late. Therefore, it is advised that taxpayers keep all supporting documents on file because normally the US Treasury’s FinCEN will ask for it.
Late FBAR filers should consider sending in a paper letter separately explaining the late filing and justify “reasonable cause”. The IRS has issued a Fact Sheet on this concept of “reasonable cause” for failing to file an FBAR. This is important since the e-filing system currently does not support the capacity to attach a letter or statement explaining why the FBAR is being filed late.
We at AGTax would like to stress that FBARs are important to the IRS enforcement efforts regarding foreign accounts and income tax compliance, thus the rules are likely to get more rigid in the near future, making it important for every US citizen, resident and entity to get their filings in place.
We Can Help
Our international tax specialists at Aylett Grant Tax LLP are well versed in advising on a variety of situations dealing with foreign bank account reporting. With the changes made to acceptable filing methods it is even more important to consult with a tax advisor to ensure a timely and accurate filing to avoid any potential penalties and/or complications.
Please call Peter Aylett at 604-538-8735 to arrange for an appointment to discuss your U.S. and/or Canadian tax issues.
IRS Circular 230 Disclaimer: Please note that any tax advice in this document was not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer under the Internal Revenue Code or applicable state or local tax law provisions.