If you are within the taxing jurisdiction of the U.S. and have offshore financial assets, you should be aware of the fundamental aspects of U.S. international taxation. Not only U.S. citizens earning income outside the States are required to pay taxes under the provisions of the U.S. tax law; resident aliens are also taxed on all forms of income, whether domestic or foreign.
In the United States, laws can be enacted by legislative bodies at the federal, state or local level. The U.S. code is so complex that in order to avoid mistakes and criminal consequences, you may want to ask yourself “Do I need to consult a tax attorney serving the area near me?” Many taxpayers find that they need the assistance of an attorney when collecting their tax documents for FBAR reporting. Rest assured that a skilled and experienced FBAR lawyer in or near San Diego can help you comply with all U.S. laws and policies related to taxation of foreign nationals’ investment, income, and business activities in the States.
If you were unaware of your obligations, here’s what you need to know about FBAR filing.
What is FBAR?
The Report of Foreign Bank and Financial Accounts, known as FBAR or the Foreign Bank Account Report, is an annual report required under the Bank Secrecy Act. This filing requirement was created to help the U.S. government prevent abusive offshore transactions and identify U.S. taxpayers who try to evade or avoid U.S. income tax.
Do I need to file the FBAR?
Non-resident aliens are taxed on any income from a U.S. source and don’t have to pay income tax on their foreign-earned income. They also do not need to report foreign accounts they have in their home country or overseas. On the other hand, U.S. nationals and resident aliens are required to pay tax their worldwide income including overseas pension funds and foreign-issued life insurance. They are also required to report certain foreign financial assets.
Regardless of whether you are in the U.S. or abroad, if you are a U.S. citizen or a resident alien, the rules generally the same. The FBAR reporting is required of individuals, green card holders, and businesses that have $10,000 or more in foreign financial accounts.
If you are a U.S. taxpayer and have signature authority over, or a financial interest in an offshore bank account, you have to file an FBAR in case the total value of your foreign accounts equals or exceeds $10,000 or its foreign equivalent at any time during one calendar year.
It doesn’t matter if the money is in one or ten different accounts. Bear in mind that you are supposed to file an FBAR even in case your offshore account has non-monetary assets of $10,000 or more. US businesses with offshore bank account balances that meet the requirements must also file an FBAR.
Are there exceptions to the Reporting Requirement?
There are filling exceptions to the FBAR reporting stated in the FBAR instructions. Some of the exceptions are: an offshore account jointly owned by spouses, foreign accounts owned by an international institution or by a governmental entity, U.S. individuals included in a consolidated FBAR, certain persons who have signature authority over an offshore account but have no financial interest in it, etc.
Married joint account holders that don’t have separately held accounts of their own may file a joint FBAR; otherwise, they are to report their foreign income/assets separately. For more information contact an experienced tax attorney to assist you decide whether you have an FBAR filing requirement.
How do I file my FBAR?
To keep up with the annual FBAR obligations, it is essential that you keep careful records. Submitted forms have to contain the type, number and name of the bank account(s), as well as the name on the financial account(s), the maximum value for each account converted into United States dollars, and the address and name of the institution which maintains the account.
You have to report foreign bank accounts and assets annually to the U.S. Department of Treasury by filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). The FBAR FinCEN Report 114 must be electronically filed through the BSA E-Filing System.
FBAR filers who are considered individuals can file their FBAR without registering, while CPAs, attorneys and enrolled agents have to register first in order to file as an institution. The IRS website also all the information on FBAR filing requirements.
What is the FBAR filing deadline?
Since 2017, the FBAR has the same filing deadline as individual income tax returns. For all Americans living in the U.S., the annual filing due date is April 15, unless it falls on a weekend or holiday, like in the case of the 2017 tax year, when the FBAR reporting deadline is April 17, 2018. For U.S. expats, the deadline is June 15, when expat taxes are due.
All filers who fail to meet the due date, regardless of whether they live in the U.S. or abroad, are automatically granted a six-month extension to October 15. No specific requests are required for this extension. The FBAR is not submitted with a federal tax return nor does an extension to file your FBAR extend the due date for filing federal income tax returns.
What if I have forgotten to file and report my past FBARs?
The first and most important thing you should know is that you cannot simply file all your late FBARs on your own. That is called a quiet disclosure and it is illegal so you would. You could be subject to criminal investigation, prosecution and a 100% penalty.
If you are not under a criminal investigation or a civil examination, and the IRS hasn’t contacted you yet, you can try to explain why the filing is late. Enter your explanation or select a reason for filing late on the cover page of the electronic form.
If you were liable to file an FBAR but were unaware you had to, you can voluntarily get into IRS compliance through the OVDP until September 28, 2018, or use the Streamlined Filing Compliance Procedures, which continue to be available for U.S. taxpayers with unreported foreign assets or income. Consult with an experienced international tax attorney in/near San Diego to find out eligibility requirements for these programs and determine the best way to disclose your foreign account(s) legally.
How severe are the FBAR penalties?
If you fail to comply with the FBAR reporting, you may face severe criminal and civil penalties. If the IRS determines that the violation is willful, the penalty can go as high as $100,000 or 50% of the balance in your foreign account at the point of the violation. The fine can be imposed for each account and for each year the account went unreported.
In case the violation is considered unintentional by the IRS, the penalty can go up to $10,000 per violation and although it could also be imposed for every undisclosed foreign account and every year of the violation, the IRS tends to impose just a single $10,000 penalty.
Criminal penalties, on the other hand, could include imprisonment of up to 5 years and/or may result in a fine of up to $250,000. Usually, the IRS charges related violations like tax evasion and filing a false tax return.
Can an FBAR lawyer near the area I live help me?
With penalties this harsh, if you have failed to file one or more FBARs, it is strongly advised that you speak with an attorney. If you live in San Diego, our experienced international tax attorney can meet with you to discuss your offshore reporting. If you are outside of San Diego, we offer 1-hour free consultation via phone or skype. It’s crucial to have an experienced attorney who can help you minimize your tax liabilities and penalties, as well as try to prevent criminal prosecution.