Statutory Authority for the FBAR
The Bank Secrecy Act (BSA) of 1970 authorizes FinCEN, which is part of the U.S. Department of the Treasury, to require individuals and businesses to file the FBAR. The purpose of the BSA is to give the government tools to combat financial crimes like money laundering and tax evasion. Critics of the FBAR argue that it casts far too wide a net and inundates the government with paperwork. The IRS maintains that the FBAR is necessary because of possible disparities between disclosure laws for U.S. financial institutions and those in other countries. To put that another way, since other countries might not require as much financial disclosure by their banks and securities firms, the U.S. requires its own citizens to make up the difference.
Who Must File the FBAR?
A “United States person” must file an FBAR if they held accounts in foreign financial institutions with a total value of at least $10,000 at some point during the calendar year. This includes U.S. citizens living anywhere in the world, noncitizens living in the U.S., and business entities, trusts, and estates created under U.S. law. The types of accounts that U.S. persons must disclose include bank accounts, securities accounts, mutual funds, and insurance policies that have a cash value. An account is considered “foreign” when the institution is located outside of the fifty U.S. states, the District of Columbia, and U.S. territories like Puerto Rico and Guam. To “hold” an account, a person must be the record owner of the account. If an account has multiple record owners, each person must submit an FBAR.
Modified reporting requirements may apply if a person has an interest in twenty-five or more foreign accounts. Exceptions to the reporting requirement include trust beneficiaries, and owners and beneficiaries in certain retirement plans.
The form requires filers to disclose the names and addresses of foreign financial institutions where they held account, along with the type of each account and its maximum value during the year. FinCEN operates an electronic FBAR filing system, which replaced a Treasury Department form, TD F 90-22.1, in 2013. Since 2015, the deadline for filing for the previous calendar year is April 15. Disclosures for calendar year 2018 would therefore be due on April 15, 2019.
What Are the Penalties for Not Filing?
The BSA imposes a maximum civil penalty of $10,000 for failure to file an FBAR. If a person “willfully” fails to file an FBAR, or willfully causes someone else to fail to file, they may be subject to a civil penalty equal to the greater of $100,000 or the balance of the foreign financial accounts. The BSA also allows criminal penalties for willful violations of up to five years imprisonment and a fine of up to $250,000.
Who Must File the Report of Foreign Bank and Financial Accounts (FBAR) and Why?
We’ve answered the “Who must file the report of Foreign Bank and Financial Accounts (FBAR) and why?” question above, but the bottom line for anyone in this position is that if you have any doubt, you should make sure that you either file the form or that you’re certain that you’re exempt for some reason. That’s because, as you’ve also seen above, the penalties for failing to do so can be severe. There’s no reason to walk into this type of problem, so take the necessary steps to provide yourself with the peace of mind you deserve.
If you’re unsure of who must file the Report of Foreign Bank and Financial Accounts and why question, you shouldn’t assume anything. Instead, you should work with financial and tax professionals who understand how to answer this question and who can help you take the correct steps to protect your interests. Enterprise Consultants Group is a team of professionals who can help you.
All you need to do to eliminate this question from your mind is contact us. Bring all of your records and any relevant documentation, and we will review it for you. If it looks like you need to file the FBAR, we’ll help you do that in a timely fashion so that you’re in compliance with federal law. If you don’t have to file the FBAR, we’ll advise you in that regard as well. Even if it turns out that you’re exempt, it’ll be better for your own psyche to be fully aware of that.
If you have questions about taxes, the Enterprise Consultants Group’s tax advisors are available to assist you. Please contact us today online or at (800) 575-9284 to discuss your case.