Last July, Congress enacted legislation which changes the filing deadline for individuals with foreign bank accounts. While the “Report of Foreign Bank and Financial Accounts” (FBAR) deadline remains June 30, 2016 for calendar year 2015, the legislation changes the standard due date to April 15 beginning with the 2016 calendar year reports due in 2017. While no extensions are currently allowed for the 2015 filing year, next year U.S. citizens and residents will be allowed to extend the FBAR filing corresponding with the extended due date of their personal tax returns to October 15.
The following information provides an overview of FBAR requirements, including who must file, forms to use, reporting and filing information and an opportunity to catch up old filings through an offshore voluntary disclosure program.
Who Must Report Foreign Accounts?
The Bank Secrecy Act (BSA) may require individuals who have a financial interest in or signature authority over a foreign financial account to report the account annually to the Department of Treasury by filing a Financial Crimes Enforcement Network FinCEN Report 114, “Report of Foreign Bank and Financial Accounts” (FBAR).
The requirement includes individuals with the following foreign accounts:
- Bank accounts
- Brokerage accounts
- Mutual funds
- Other types of foreign financial accounts that exceed certain thresholds (Form 8398)
Any U.S. person, whether an individual or an entity, with a financial interest in or signature authority over one or more foreign bank or financial account must file an FBAR when the aggregate value of the accounts exceeds $10,000 at any time during the year. A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (Form 1040 Schedule B) and by filing an FBAR.
Certain individuals do not need to file FBAR reports. For example, owners and beneficiaries of U.S. IRAs, certain foreign financial accounts jointly owned by spouses and foreign financial accounts owned by an international financial institution are exempt.
Which Forms to Use
Filers can use the online FinCEN Report 114 to enter not only the current calendar year reported, but also past years. The form includes a field to explain a late filing. In 2013, FinCEN posted an online notice introducing the FinCen Report 114A for filers who submit FBARs jointly with spouses or who have a third-party preparer who files FBARs on their behalf. This form is not submitted when filing an FBAR, but it must be kept in the filer’s record and made available upon request to the IRS or FinCEN.
Reporting and Filing Information
The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
- Current Filing Deadlines
Currently, the FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, there is no provision for requesting an extension of time to file an FBAR.
- Recently Enacted Filing Deadlines
The recently enacted legislation changes the standard due date to April 15 beginning with the 2016 calendar year reports due in 2017. While no extensions are currently allowed for the 2015 filing year, next year U.S. citizens and residents will be allowed to extend the FBAR filing corresponding with the extended due date of their personal tax returns to October 15.
The 2015 legislation also provides for penalty relief for first-time filers by giving the IRS authority to waive penalties for failure to timely request an extension. Others required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.
Opportunity: Offshore Voluntary Disclosure Program
There is an opportunity for people with unreported taxable income from offshore financial accounts or other foreign assets to fulfill their tax and information reporting obligations, including the FBAR.
This is an opportunity to catch up old filings through an offshore voluntary disclosure program and streamlined filing compliance procedures. The IRS will impose reduced penalties for the failure to file delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your amended U.S. tax returns, if applicable. The reduced penalties only hold true if you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
For more detailed information and assistance with FBAR filing requirements, please contact Marvin Willis at 404.874.6244.