Foreign account reporting: What you need to know about FBAR

The IRS continues to seek out and penalize those who fail to report foreign financial accounts.

The IRS continues to seek out and penalize those who fail to report foreign financial accounts.

Today's economy is a global economy. As a result, the presence of offshore financial interests is not uncommon. However, United States persons with foreign financial interests need to carefully report these accounts and holdings to the IRS. One wrong move could lead to hefty monetary penalties and potential imprisonment.

The Internal Revenue Service (IRS) is taking violations seriously. The agency has increased measures to hold those who fail to properly report these holdings accountable for violations. Disclosure of these accounts is required under the Bank Secrecy Act, which requires that U.S. persons report variousforeign financial interests including bank accounts, brokerage accounts and mutual funds. Even those who have no financial interest in the account may be required to file. This can include employees and officers with signatory authority over foreign accounts.

More on FBAR

One of the more common foreign financial requirement forms is the FBAR. FBAR, or the Report of Foreign Bank and Financial Accounts also known as FinCEN Form 114, is required by the Financial Crimes Enforcement Network, or FinCEN. FinCEN has delegated the power to enforce this requirement to the IRS. The form is required for any United States person who has financial interest in or a signature authority over a foreign account with a value of $10,000 or more.

A U.S. person is defined as any citizen or resident of the United States as well as any domestic legal entity. This includes partnerships, corporations, estates or trusts.

The form requires information including the taxpayer's name, U.S. taxpayer identification number as well as information about the foreign holding. This includes classification of the account (such as securities or bank account) and the maximum value of the account during the calendar year.

Failure to file this form can lead to both criminal and civil penalties. Potential penalties include:

  • Willful violation: $100,000 or 50 percent of the balance of the account at the time of the violation, whichever is greater.
  • Non-willful violation: Up to $10,000 for each violation.

Additional monetary penalties and potential imprisonment can also apply depending on the details of the alleged violation.

Legal counsel can help

This area of law is not only complex, but is also frequently changing. For example, the IRS recently required electronic filling of this form. Paper filings are generally not accepted. As a result, those who hold foreign financial interests are wise to seek the counsel of an experienced international tax attorney. An attorney can help guide you through the process, better ensuring your interests are protected.

Keywords: Tax Law