An American holding a financial account located outside the United States may not come as a shock to some, but the required reporting that comes along with it may be! U.S. Citizens with money in foreign accounts need to have a basic understanding of FBAR (Foreign Bank and Financial Accounts Reporting) to ensure a smooth tax season.
Parameters for Filing Necessity
Whether living in the U.S. or abroad, every U.S. person (citizens, resident aliens, green card holders) is required to file FinCEN Form 114 as long as the balance of all foreign accounts is greater than $10,000 at any point during the calendar year. It does not matter if you are an owner of the account, a nominee, or can control the distribution of the account’s funds, you will still need to file FinCEN Form 114.
When filing FBAR, it must be done electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. This will hold true for almost all form submissions, however, if you would like to paper-file your FBAR, you must call FinCEN’s Regulatory Helpline to request an exemption from e-filing. Additionally, if you wish to have an institution file Form 114 on your behalf, you should use FinCEN Report 114a, to authorize that person to do so.
What Else to Know
While Form 114 is not submitted to the IRS, it does not mean they will not require you to report in this (granted you are a current U.S. resident). The IRS will collect this information by having you complete Schedule B, Part III of your tax return and potentially Form 8938. Schedule B, Part III and Form 8938 are both a part of your tax return, unlike the FBAR, which is filed separately.
Why You Should Submit
Failing to disclose information on your Foreign Bank and Financial Accounts Reporting will lead to nothing but headaches, and steep penalties. These penalties can be broken down into two separate classes, willful and non-willful. Non-willful penalties are enforced in a more sparing manner, being capped at $10,000 per FBAR filing. In terms of willful penalties, you can expect to be penalized in a much more severe fashion. This can be seen through the willful penalties cap of up to the greater of $100,000 or 50% of the balance in the account at the time of the violation.
With steep penalties primed to be dished out to anyone who does not abide by the correct reporting guidelines, taxpayers should confirm they have their information packaged in the correct way for their current tax year. If not, prepare to be penalized!
Unsure if you need to file? For a better understanding feel free to give us a call at 516-541-6549.