Every year, under the law known as the Bank Secrecy Act, you must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. A United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:.
Generally, an account at a financial institution located outside the United States is a foreign financial account. Note: Income tax filing status, such as married-filing-jointly and married-filing-separately has no effect on your qualification for this exception. If you are affected by a natural disaster, the government may further extend your FBAR due date. For certain employees or officers with signature or other authority over, but no financial interest in certain foreign financial accounts, the FBAR due date is deferred to April 15, See Notice PDF.
See Contact Us below to reach this Helpline. The employer must keep the records for these accounts. Assertion of penalties depends on facts and circumstances. Many expats also find that they have to file one year and not the next. For this reason, it is important to make good recordkeeping a habit. The process is straightforward and requires you to gather all pertinent account information and enter it into the online system.
You can have a third party prepare it for you i. If your spouse has other accounts that you are not on i. When filing separately, you must both include your joint accounts on each of your individual FBAR forms. If you miss this deadline, there is an automatic extension to October 15th. The program most helpful to expats is the Streamlined Filing Procedures. This program is available to US citizens living both in the US and abroad, and all who have failed to file due to a lack of knowledge of their obligations are eligible.
Previously, some restrictions prevented many expats from qualifying for the program, but the IRS lifted those to make it easier for people to get caught up. FBAR reporting will be done electronically, just as it would if you filed on time, with special notation confirming your participation in the program. Getting caught up is extremely important if you are behind in your FBAR filings. While there are no penalties when filing under the Streamlined Procedures, if the IRS finds out before you come forward, you will be ineligible for this program and subject to the maximum penalties.
With the introduction of the FATCA legislation in , the chances of getting caught have increased, as foreign financial institutions are now required to notify the IRS of your foreign accounts.
Individuals not considered as having signature authority: Individuals with only the authority to buy or sell investments within the account, but no authority to disburse assets from the account. Individuals with supervisory authority over the individuals who actually communicate with the person with whom the account is maintained. Signature Authority Exceptions An officer or employee of the following institutions need not report signature or other authority over a foreign financial account owned or maintained by the institution if the officer or employee has no financial interest in the account: A bank that is examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration.
A financial institution that is registered with and examined by the Securities and Exchange Commission or Commodity Futures Trading Commission. An Authorized Service Provider for a foreign financial account owned or maintained by an investment company that is registered with the Securities and Exchange Commission. Note: Authorized Service Provider is an entity that is registered with and examined by the Securities and Exchange Commission and that provides services to an investment company registered under the Investment Company Act of An entity with a class of equity securities listed or American depository receipts listed on any U.
An entity that has a class of equity securities registered or American depository receipts registered under section 12 g of the Securities Exchange Act.
An officer or employee of a U. See IRM 4. Examples are: An account with a Hong Kong branch of a U. Steps to aggregate account values: Each account should be separately valued according to the steps outlined in IRM 4.
Exception: Money moved from one foreign account to another foreign account during the year must only be counted once. Each account should be converted from foreign denominated value to U. All reportable accounts should be aggregated, including: Solely-owned accounts. Jointly-owned accounts. Direct financial interest accounts. Indirect financial interest accounts. Signature authority accounts. Caution: This exception is for U. The spouse of an individual who files an FBAR is not required to file a separate FBAR if the following conditions are met: All the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse.
The filing spouse reports the jointly owned accounts on a timely, electronically filed FBAR. The filing spouse completes Part II of Form a in its entirety. Note: The completed Form a is not filed but must be retained for five years. The preparer or other third-party filer must complete Part II of Form a. Filers must comply with FBAR record-keeping requirements. Is an officer or employee of an employer located outside the U. Has signature authority over a foreign financial account s of that employer.
In such cases, the U. Omitting account information. Completing employer information one time only. Keep a copy of the FBAR for recordkeeping purposes. Complete the report in its entirety using the amended information. Each person having a financial interest in or signature or other authority over any such account must keep the following records: Name in which the account is maintained. Number or other designation identifying the account.
Name and address of the foreign financial institution or other person with whom the account is maintained. Type of account.
Maximum value of each account during the reporting period. FBAR Recordkeeping For Filers Having 25 Or More Accounts A filer who has financial interest in or signature authority over 25 or more foreign financial accounts must also comply with the record keeping requirements.
Civil FBAR penalties have varying upper limits, but no floor. The examiner has discretion in determining the amount of the penalty, if any.
There may be multiple civil FBAR penalties if there is more than one account owner, or if a person other than the account owner has signature or other authority over the foreign account. Each person can be liable for the full amount of the penalty.
Pattern of negligent activity. Penalty for non-willful violation. Penalty for willful violations. These two negligence penalties apply only to trades or businesses, and not to individuals. Negligence Defined Actual knowledge of the reporting requirement is not required to find negligence. The simple negligence penalty applies only to businesses, not individuals. The penalty should not be imposed if: The violation was due to reasonable cause, and The person files any delinquent FBARs and properly reports the previously unreported account.
Penalty for Nonwillful Violations — Calculation After May 12, , in most cases, examiners will recommend one penalty per open year, regardless of the number of unreported foreign accounts.
There may be both a reporting and a recordkeeping violation regarding each account. A finding of willfulness under the BSA must be supported by evidence of willfulness.
The burden of establishing willfulness is on the Service. Example: Willful blindness may be present when a person admits knowledge of, and fails to answer questions concerning, his interest in or signature or other authority over financial accounts at foreign banks on Schedule B of his Federal income tax return. Note: The failure to learn of the filing requirements coupled with other factors, such as the efforts taken to conceal the existence of the accounts and the amounts involved, may lead to a conclusion that the violation was due to willful blindness.
The following examples illustrate situations in which willfulness may be present: A person files the FBAR, but omits one of three foreign bank accounts. The person had previously closed the omitted account at the time of filing the FBAR. The person explains that the omission was due to unintentional oversight.
During the examination, the person provides all information requested with respect to the omitted account. The information provided does not disclose anything suspicious about the account, and the person reported all income associated with the account on his tax return. The penalty for a willful violation should not apply absent other evidence that may indicate willfulness. When asked, the person does not provide a reasonable explanation for failing to file the FBAR.
In addition, the person may have failed to report income associated with foreign bank accounts for the years that FBARs were not filed.
A determination that the violation was willful would likely be appropriate in this case. A person received a warning letter informing him of the FBAR filing requirement, but the person continues to fail to file the FBAR in subsequent years. In addition, the person may have failed to report income associated with the foreign bank accounts.
Documents that may be helpful in establishing willfulness include: Copies of statements for the foreign bank account. Promotional material from a promoter or offshore bank. Statements for debit or credit cards from the offshore bank that, for example, reveal the account holder used funds from the offshore account to cover everyday living expenses in a manner that conceals the source of the funds.
Copies of Information Document Requests with requested items that were not provided highlighted along with explanations as to why the requested information was not provided.
Copies of debit or credit card agreements and fee schedules with the foreign bank, which may show a significantly higher cost than typically associated with cards from domestic banks. The written explanation of why the FBAR was not filed, if such a statement is provided.
Otherwise, note in the workpapers whether there was an opportunity to provide such a statement. Copies of any previous warning letters issued or certifications of prior FBAR penalty assessments. An explanation, in the workpapers, as to why the examiner believes the failure to file the FBAR was willful. Documents available in an FBAR case worked under a Related Statute Determination under Title 26 that may be helpful in establishing willfulness include: Copies of documents from the administrative case file including the Revenue Agent Report for the income tax examination that show income related to funds in a foreign bank account was not reported.
A copy of the signed income tax return with Schedule B attached, showing whether or not the box pertaining to foreign accounts is checked or unchecked. Copies of tax returns or RTVUEs or BRTVUs for at least three years prior to the opening of the offshore account and for all years after the account was opened, to show if a significant drop in reportable income occurred after the account was opened.
Copies of any prior Revenue Agent Reports that may show a history of noncompliance. Any documents that would support fraud see IRM 4. Note: Examiners should still use the mitigation guidelines and their discretion in each case to determine whether a lesser penalty amount is appropriate Examiners may recommend a penalty that is higher or lower than 50 percent of the highest aggregate account balance of all unreported foreign financial accounts based on the facts and circumstances.
For violations occurring after October 22, , the four threshold conditions are: The person has no history of criminal tax or BSA convictions for the preceding 10 years, as well as no history of past FBAR penalty assessments.
No money passing through any of the foreign accounts associated with the person was from an illegal source or used to further a criminal purpose. The person cooperated during the examination i. IRS did not sustain a civil fraud penalty against the person for an underpayment for the year in question due to the failure to report income related to any amount in a foreign account.
FBAR Penalties — Examiner Discretion The examiner may determine that the facts and circumstances of a particular case do not justify asserting a penalty.
Factors to consider when applying examiner discretion may include, but are not limited to, the following: Whether compliance objectives would be achieved by issuance of a warning letter.
Whether the person who committed the violation had been previously issued a warning letter or assessed an FBAR penalty.
The nature of the violation and the amounts involved. The cooperation of the taxpayer during the examination. The examiner may determine that: A penalty under these guidelines is not appropriate, or A lesser amount than the guidelines otherwise provide is appropriate.
To qualify for mitigation, the person must meet four criteria: The person has no history of criminal tax or BSA convictions for the preceding 10 years and has no history of prior FBAR penalty assessments.
The person cooperated during the examination. IRS did not determine a fraud penalty against the person for an underpayment of income tax for the year in question due to the failure to report income related to any amount in a foreign account. Level II-Willful penalties are computed on a per account basis. Level III-Willful penalties are computed on a per account basis..
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