Many U.S. taxpayers have foreign financial accounts for various business, investment or personal reasons. The IRS requires that any individual, partnership, trust or corporation with a financial interest in or signature authority over foreign bank accounts to file a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. Not only does this apply to checking, savings and brokerage accounts but the following are also subject to FBAR reporting:
insurance or annuity policy with a cash value,
direct or indirect investment in a foreign partnership with greater than 50% ownership in profits or capital,
direct or indirect ownership of more the 50% of the total value of shares of stock or more than 50% of the voting power of all shares of stock,
foreign trust where the U.S. person is a grantor of the trust or has a greater than 50% present beneficial interest in the assets or income,
any other account maintained with a foreign financial institution.
The FBAR requires the reporting of the name and mailing address of the financial institution, the account number, the maximum value of the account during the year as well as indicate the type of account. Any income associated with a foreign account should be reported on that year’s income tax return, regardless of whether or not the FBAR filing requirement has been met.
The FBAR is filed separately from the income tax return and needs to be received by the Department of the Treasury by June 30th. The 2012 FBAR filings need to be received by June 28th as the Treasury does not extend the due date if the 30th falls on a weekend. Extensions of time to file are not permitted. Penalties for failure to file can be substantial and, depending on the situation, can be as high as$250K and in severe cases even include imprisonment. The IRS has been increasing enforcement of FBAR filings, so expect to see greater scrutiny in this area.
In addition to the FBAR filing, the IRS is also requiring certain individuals to file Form 8938, Statement of Specified Foreign Financial Assets. The 8938 is separate from the FBAR and is required to be filed as part of the income tax return. The 8938 has higher filing thresholds than the FBAR and covers a wider array of foreign financial assets. For additional information regarding Form 8938, please click here to see our article “How The New Foreign Asset Reporting Rules May Apply To You.”
Please contact your DGC service team if you are uncertain whether you are required to file the FBAR or Form 8938 or if you have any questions about these filings.