If you are a U.S. person with a financial interest or signature authority over a foreign account, remember a new annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) takes effect this filing season. The new due date is generally April 15 (April 18 for the 2016 calendar year). The international tax advisors at Moore Stephens Doeren Mayhew explain the ins and outs of the annual FBAR filing requirement, including changes to the 2017 deadline.

2017 FBAR Filing Changes

The FBAR date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 to coincide with the federal income tax filing season. To implement the statute with minimal burden this year, FinCEN will grant filers failing to meet the FBAR due date of April 18 an automatic extension to October 15.

Who Must File an FBAR

U.S. persons are required to file an FBAR if:

  1. They have a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

U.S. persons includes citizens, residents and entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States. 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 the April 15 due date (April 18 for the 2016 filing) of the year immediately following the calendar year being reported.

Background on Foreign Financial Reporting

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 Internal Revenue Service (IRS) becoming responsible for enforcement, and penalties being raised to start at $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.

Understanding FBAR Terminology

  • 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 advisors.