As this is being written, the House and Senate are considering compromise economic stimulus legislation. The result may be available later this week. While I have been monitoring the separate bills as they have progressed through Congress, I have not cluttered your inbox with the proposals. As soon as a compromise bill is sent to the president, I will begin reporting its significant tax provisions and tax planning opportunities to you.
In the meantime, the Internal Revenue Service recently called attention to the Treasury’s recently updated Report of Foreign Bank and Financial Accounts (FBAR). I wanted to share this with you, because failure to file this report can have serious consequences.
All of the major tax returns (individual, corporation, partnership, trust and estate) or their attached schedules ask, “At any time during the year, did you (or the corporation, partnership, trust or estate) have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” Many taxpayers simply check “Yes” and answer a question reporting the country or countries in which the accounts are held. The reporting requirement, however, does not end there. If the answer is yes, the taxpayer is required to separately file Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts). The FBAR is not attached to the tax return and is typically not prepared as part of the regular tax return preparation process.
Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, is required to file if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
A FBAR is filed by June 30 of the year following the year that the account holder meets the $10,000 threshold with the U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621. An extension of time to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing this form. A FBAR must be filed whether or not the foreign account generates any income.
Penalties for failure to file may be severe. A “non-willful” failure to file may result in a civil penalty up to $10,000 for each negligent violation. An additional civil penalty of up to $50,000 for each negligent violation may be assessed if there is a pattern of negligent activity. Willful failure to file FBARs or to retain records of the accounts may result in a civil penalty of the greater of $100,000 or 50 percent of the value of the account, and criminal penalties of $250,000, a 5-year prison term, or both. OUCH!
If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. The Service will assess no penalty if it determines that the late filings were due to reasonable cause.
As with any other aspect of tax law, definition of terms is important. I haven’t attempted to define terms in this short communication, but if you have any questions concerning FBARs, contact me at 214.957.3366 or email me.
Ronnie
Copyright 2009 Ronnie C. McClure, PhD, CPA
