What is the FBAR?

The U.S. government requires individuals to file a document called the Foreign Bank Account Report (FBAR) with the Financial Crimes Enforcement Network (FinCEN). It is designed to ensure that foreign assets and income are correctly reported, helping the Department of Treasury track the activities of U.S. citizens, residents, and businesses and ensure that foreign income is accurately taxed in the United States.

Who Must File an FBAR?

A U.S. person, which includes citizens, residents, corporations, trusts, partnerships, limited liability companies, and estates, must file an FBAR under certain circumstances. This situation occurs when a person in the US has a financial stake in or control over a financial account located outside of the country, and the combined worth of all the foreign accounts is over $10,000 (in US dollars) at any point during the year.

It’s important to note that the foreign financial account does not need to generate income or taxable income for the account to trigger the need to file the FBAR. If the balance of all foreign financial accounts exceeds the $10,000 threshold, each foreign account or asset must be reported, regardless of whether you received income from the foreign account and no matter how small or low the account’s value may be.

FBAR Compliance and Filing

Ensuring compliance with FBAR filing requirements is crucial. The FBAR report must be submitted annually by April 15th for the previous year. In case you miss the due date, you can get an extension until October 15th without having to make a request for it. There’s no need to file for an extension separately for the FBAR.

The FBAR is not filed with your individual tax return. Instead, you file the FBAR electronically through FinCEN’s E-filing system. You may be able to paper file the FBAR, but to do so, you must receive an exemption to E-filing from FinCEN. You are allowed to have a third-party file your FBAR on your behalf.

To properly file your FBAR, you will need the following information:

• The taxpayer’s name, address, date of birth (if an individual), social security or employer identification number
• Name on the foreign account
• Name and address of the foreign bank or financial institution
• Account number or identifying number for the foreign account
• Type of account or foreign asset
• The maximum value in U.S. dollars of the account during the year.

All foreign financial accounts are generally reported on one FBAR, even if the accounts are held only by you or jointly.

While the law does not require any specific record-keeping for the FBAR, it is highly recommended that you keep all of your forms or statements to verify the information stated on the FBAR and the exchange rate you used if you converted foreign currency into U.S. dollars.

Penalties for Non-compliance

Failure to comply with FBAR filing requirements can lead to severe penalties. Both civil and criminal penalties can apply when an FBAR is not timely filed.If you fail to file the FBAR, you may be penalized up to 50% of the account or asset value that was not reported.This means you could lose up to half of the value of your foreign account or asset by not filing the FBAR.

Other Foreign Compliance Forms

If you are reporting foreign assets on the FBAR, you may also have the requirement to report these assets elsewhere. If you have a foreign bank account, there are boxes on Schedule B that may need to be checked. Additionally, you may have income to report on your Schedule B. Other common forms to report foreign assets include Form 8938, Form 3520 or Form 3520A, or Form 5471. The specifics surrounding your foreign asset reporting will dictate the form or forms you need to file and how and where the forms need to be filed.

What If I Have Failed to File FBARs for One Or Multiple Years?

If you have not filed your FBARs and are not already under an investigation by the Department of Treasury, you may be able to file your FBARs and other foreign compliance forms and unreported foreign income through specific programs with a lesser penalty. These programs include the Streamlined Offshore Voluntary Disclosure Program (Streamlined OVDP), and the IRS has a Delinquent International Information Return Submission Program. These programs differ, and weighing your options and potential outcomes with your specific facts and circumstances is essential.

Taxation on Foreign Income from FBAR Accounts or Assets

Foreign income is taxable and would be included on the appropriate form or schedule on your tax return and thus subject to U.S. tax. For example, interest from a foreign bank account would be reported just like interest from a U.S. bank and subject to ordinary income tax.

What If I Have Already Paid Tax To A Foreign Country?

If you paid taxes to a foreign country, you might be eligible for the foreign tax credit. This credit allows you to apply all or part of the tax you have already paid to your total tax bill. Form 1116 is completed to claim the foreign tax credit.

FBAR Updates

As of July 1st, 2013, the electronic version of the FBAR is currently available and must be filed electronically. This is part of FinCEN’s efforts to streamline the filing process and make it more efficient.

In addition, FinCEN has provided some relief to victims of recent natural disasters, allowing them more time to meet their FBAR filing obligations. This is a reminder that the government considers extraordinary circumstances that may affect taxpayers’ ability to file on time.

Conclusion

If you have any questions about whether you have an FBAR filing requirement or have the FBAR filing requirement and have not filed, it is highly recommended that you speak with a tax professional, preferably one specializing in international tax compliance, to determine your compliance requirements and options. FBAR compliance is critical and can lead to hefty civil and criminal penalties.

FBAR Statute of Limitations

The FBAR statute of limitations rules differ from other tax law enforcement rules. That is because the FBARS refers to US title 31 (Money and finance), not title 26 (the Internal Revenue Code).

The FBAR reporting relates to offshoring foreign assets, accounts, and investments. However, it does not relate to income reporting. The IRS takes an aggressive stance toward foreign accounts compliance. Still, the IRS is restricted in the time to assess or enforce the FBAR Statutes.

FBAR penalty assessment statute

31 USC 5321(b)(1) and 5321(b)(2) provide the FBAR penalty assessment statute expiration date and collection statute expiration date, which is part of the Bank Secrecy Act. The FBAR assessment statute expiration date is six (6) years from the due date of the FBAR, and this applies to whether the failure to file the FBAR was willful or non-willful. It is important to note that you can also be assessed a penalty for failing to maintain required records. The FBAR penalty statute of limitation for failing to maintain required records, whether willful or non-willful, is also six years, but this statute only begins to run from the date the Internal Revenue Service first requests the records.

The “Limits” of the FBAR Statute of Limitations

The Internal Revenue Service (IRS) has several tools to combat offshore tax evasion. One of those tools is the Foreign Bank Account Report (FBAR). Although the FBAR filing deadline is April 15th yearly, the IRS does not consistently enforce it strictly. Instead, the agency uses a variety of tactics to catch taxpayers who fail to file a report.

In some cases, the IRS will use the FBAR reporting requirement to help determine whether someone committed a federal offense. For example, the IRS may investigate a person failing to file an FBAR. If the investigation reveals grounds to prosecute the individual, the IRS could refer the case to the Justice Department.

Another way the IRS enforces the FBAR filing requirement is by auditing returns filed by individuals who did not comply with the law. Auditors might look into particular accounts to see if the taxpayer had money overseas. They could even examine whether the taxpayer used foreign financial institutions to hide assets.

When the IRS starts investigating the FBAR filing requirements, it typically looks at records dating back six years. However, the IRS often extends the statute of limitations beyond that date. When the IRS determines that someone failed to file an FBAR within the statutory period correctly, it sends a notice demanding payment. If the taxpayer fails to pay, the IRS files a lien against his property. The lien prevents the taxpayer from selling his assets without paying the IRS.

FBAR Statute Limitations Example 1

That being said, let’s apply these FBAR statute limitations as an example. Let’s assume Joe has foreign bank accounts in the calendar year 2014 that exceed $10,000 and that, for purposes of the FBAR filing, Joe is a US Person. Joe would thus have been required to file the FBAR (Report of Foreign Bank and Financial Accounts) on June 30, 2015. Joe was unaware of the FBAR filing requirement and did not file FinCEN Form 114. The FBAR penalty assessment statute of limitations for failing to file the FBAR would expire on June 30, 2021.

Failure To Maintain Required Records

Now let’s apply the FBAR statute of limitations for failing to maintain required records. We will assume the same facts above, but Joe also failed to maintain the required records. On April 1, 2016, an IRS or other examiner requested the relevant records to Joe’s foreign bank accounts. The FBAR assessment statute of limitations for failing to maintain required records expires on April 1, 2022.

Statute Of Limitations To File Suit

Now that we have determined Joe’s FBAR statute of limitations for assessing an FBAR penalty, does the government have a statute of limitations to file suit? Yes, there is a two (2) year statute for the government to file a civil action against Joe to recover an FBAR penalty. However, there is no statute of limitations for the period in which the government can receive payment from Joe by offsetting certain payments.

For More Information

John McGuire has prepared the above article to provide information about FBAR statute limitations. Still, please remember to always discuss your specific facts and circumstances directly with your tax attorney or other counsel. Please contact us anytime if you wish to speak with a Denver tax attorney or Denver Business Attorney at The McGuire Law Firm. Call us at 720-833-7705 today!

The video below also provides a short explanation of non-willful conduct, which of course is based upon the facts and circumstances of each case.  Please remember to consult with your tax attorney directly if you have questions relating to FATCA, FBAR filings and/or other foreign tax compliance issues.

You can contact The McGuire Law Firm to speak with a tax attorney regarding your issues.

The video below has been prepared to provide additional information regarding enforcement of the FBAR.

John McGuire is a tax attorney in Denver, Colorado at The McGuire Law Firm.  John’s practice in taxation involves matters before the Internal Revenue Service such as tax audits, FBAR & OVDP matters, tax debts, issues before United States Tax Court and individual & business taxation.  You can speak with a Denver tax attorney at The McGuire Law Firm by calling 720-833-7705 and scheduling a free consultation.

Speak with a tax attorney in Denver, Colorado or Golden, Colorado at The McGuire Law Firm regarding your tax questions and issues.

If you have questions regarding your requirements to report foreign accounts or assets, contact The McGuire Law Firm to schedule a free consultation with a tax attorney in Denver, Colorado.