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Winning Back-Office Strategies to Boost Your Business Agility
VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
U.S. persons, including citizens, residents and entities, that have financial interest in or signature authority over a foreign financial account with assets exceeding $10,000 are required to file a Report of Foreign Bank and Financial Accounts (FBAR) electronically with the U.S. Treasury by June 30, 2015, or face significant penalties.
The international tax accountants at Doeren Mayhew and our international affiliate, Moore Stephens Doeren Mayhew, explain the ins and outs of the annual calendar-year FBAR filing requirement.
The U.S. requirement to report on foreign bank accounts has been around for decades, but took on greater importance in recent years, with the IRS becoming responsible for enforcement, and penalties being raised to $10,000 per non-willful violation – an amount that can increase to $50,000 for ongoing non-compliance.
The government is concerned that taxpayers are attempting to hide money offshore and avoid U.S. tax. Investigators use FBARs to help identify funds used for illicit purposes — or to identify unreported offshore income. The United States also has agreements with many countries that are intended to help identify U.S. taxpayers hiding assets abroad.
Penalties vary by severity, but can climb to $100,000 or 50 percent of the account balance for each willful civil infraction and up to $500,000 and 10 years in prison for criminal violations. To avoid penalties, special rules may apply to delinquent filings.
You’re required to file the report when to conditions are met:
The law applies to most areas outside the United States, Puerto Rico and U.S. territories and possessions, such as the U.S. Virgin Islands and Guam.
The FBAR must be received by Treasury on or before June 30 of the year immediately following the calendar year being reported. Extensions are not allowed.
Foreign Financial Account: A financial account includes securities, brokerage, savings, demand, checking, deposit, time deposit or other accounts maintained with a financial institution. This also includes a commodity, futures or options account, an insurance account with a cash value, an annuity policy with a cash value and shares in a foreign mutual fund. Accounts are treated as foreign financial accounts if they are located outside the United States, even if accounts are maintained with foreign branches of a U.S. bank. A financial account maintained by a U.S. branch of a foreign bank is not a foreign financial account.
Financial Interest: U.S. persons have financial interest in foreign financial accounts if they own or hold beneficial interest in an account, regardless of who maintains it. Most people underestimate how inclusive the term “financial interest” is. You may be holding the account as an agent or indirectly because of ownership of a foreign business and have a reporting obligation. Many people overlook the fact that a direct or indirect controlling interest in a foreign subsidiary with a bank account causes a reporting obligation for the U.S. shareholder.
Signature Authority: Signature authority is the authority of an individual to control the disposition of assets held in a foreign financial account by direct communication to the financial institution that maintains the account. This authority may exist with an individual alone or in conjunction with other individuals. Several exceptions exist for officers and employees of banks that have signature authority. Specifically, individuals who have signature authority over, but no financial interest in, a foreign financial account are not required to file an FBAR with regards to such account in certain situations.
For assistance determining whether foreign financial reporting applies to you and filing your FBAR, contact our international tax accountants in Michigan, Houston or Ft. Lauderdale.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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