Now that the April income tax deadline has come and gone, you may be thinking you’re done with the Internal Revenue Service for another year. If you have foreign assets, however, such as a securities, brokerage, checking, deposit or other account, you have one more filing deadline to worry about. The bad news is, the deadline for making your Foreign Bank Account Report, also known as FBAR, was April 15. But the good news is, you can still file a report through the BSA E-Filing System until October 15 without a penalty.
The FBAR helps the U.S. Government identify persons who may be using foreign bank accounts to avoid reporting income from outside the country. According to the IRS, any U.S. taxpayer with a financial interest in, or signature authority over, foreign financial accounts must file an FBAR (also known as FinCEN Form 114) if the aggregate value of those accounts exceeds US$10,000 at any time during the calendar year. This applies to individuals and legal entities, such as limited liability companies (LLCs), corporations, partnerships, trusts and estates.
If you hold accounts in Canada personally or as part of your business, for example, it may not have occurred to you to complete an FBAR. But failure to do so could mean paying civil penalties of up to $10,000 per violation for non-willful violations. Willful violations could result in a penalty up to the greater of $100,000 or 50 percent of the account balance, per violation. The government can also impose criminal penalties of up to $500,000 in fines, or even jail time, so it’s in your best interest to resolve any matters involving your foreign accounts before the October 15 deadline.
What constitutes a foreign account? IRS officials provide three examples:
- Example:An account maintained with a branch of a United States bank that is physically located in Germany is a foreign financial account.
- Example:An account maintained with a branch of a French bank that is physically located in Texas is not a foreign financial account.
- Example:Ed, a United States citizen, purchased securities of a French company through a securities broker located in New York. Ed is not required to report these securities because he purchased the securities through a financial institution located in the United States.
As I mentioned, foreign accounts could include securities, brokerage, checking or deposit-type accounts, but they could also include insurance policies with a cash value, such as a whole-life insurance policy, annuity policies with a cash value, and shares in a mutual fund or a similar pooled fund.
Exceptions to the reporting requirement do exist, and they include:
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRAs
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
- Foreign financial accounts maintained on a United States military banking facility.
The IRS offers a handy reference guide to help taxpayers understand whether they need to file an FBAR. At AMDG Financial, we would also be glad to answer any questions or assist your tax preparer with more information. Please feel free to contact us if we can be of assistance.