We Know Foreign Tax Compliance

 

Foreign Bank Account Reporting (FBAR) is serious business. We offer free FBAR assessments to help you navigate the murky waters of compliance. To answer many FBAR basics, see our FBAR FAQs. For more information about voluntary disclosure, see our short video on the FBAR Streamlined Voluntary Disclosure Program.

The Bank Secrecy Act requires certain U.S. foreign bank account owners to file annual FBARs. It continues to be an area of focus of the IRS and the Department of Justice. Consider the bad news first: 

• For willful failures to file, penalties can reach 100% of the highest balance held in the applicable foreign account;  
• Failure to correctly answer the 1040 Schedule B Foreign Bank Account question can satisfy the definition of “willful”;  
• Fifth Amendment rights cannot be asserted as a defense to not filing an FBAR;  
• The FBAR penalties may be imposed on an “account-by-account” basis, rather than per FBAR basis;  
• The requirement to file an IRS Form 8938, Statement of Specified Foreign Financial Assets, is separate from the FBAR requirement but just as serious. For a comparison, see FBAR v. Form 8938. 

And the penalty regimes are harsh. If non-willful, the penalties can range up to $10,000 for each undisclosed account; if willful, up to $100,000 or 50% of all account balances; plus, criminal prosecution may apply. 

The “basics” seem straight-forward:  

• FBARs are due April 15th with an automatic 6-month extension;  
• FBARs must be electronically filed on FinCEN Form 114;  
• FBAR reporting applies to U.S. persons who have a financial interest in, or signature or other authority over, foreign financial accounts that have an aggregate value exceeding $10,000 at any time during the calendar year. 

But the devil is in the details.  

• Who/what is a U.S. person?  
• What types of accounts qualify, and which are exempted?  
• What characteristics do these accounts have in common?  
• What is ownership?  
• How is value calculated and when?  
• What about cryptocurrency held in foreign exchanges?  
• What about foreign owned real estate? Foreign mutual funds? Foreign trust accounts?  
• What are the indirect ownership rules?  
• Can I consolidate my FBARs? And on and on… 

There is some good news. The FBAR “look-back” period is only 6 years, unlike unfiled tax returns where there is no statute of limitations. There are also several paths to compliance – noisy and quiet disclosures (see our Blog posts: here, here, and here). With voluntary disclosure, a non-filer has a good opportunity for penalty relief if he or she is (1) not under audit (or criminal investigation) and (2) has not been contacted by the IRS about missing FBARs. 

There are 2 keys to success. One, report your foreign bank account information precisely and accurately; and two, draft the right Statement of Reasons. With late FBARs, the IRS requires non-filers to submit a statement explaining the reasons for their non-compliance. Use extreme caution with your statement and take due care to write a concise and thoughtful explanation. A misstep here can be very costly and take your case in a direction you did not intend. It is highly advisable to seek experienced professional counsel with all FBAR matters. We have that experience and if we can be of assistance, please contact us – we are here to help.