Joe Kristan is a founding member of Roth & Company P.C.
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If you or your business has anything going on across the border, a big deadline looms.
Taxpayers with "foreign financial accounts” have a June 30 deadline to report the accounts on a so-called “FBAR” filing, on pain of severe fines.
And it’s not just owners – you have this filing requirement even if you only have signing authority – for example, on a business account where you work.
This requirement applies both to U.S. residents and U.S. citizens and legal residents abroad. For example, an Iowan who opens a local bank account while on a posting overseas for paycheck direct deposit may find themselves with a filing requirement.
FBAR filings are required when a taxpayer has an interest in a foreign financial account with a value of $10,000 US or more at any time during the year. Financial accounts include bank accounts and brokerage accounts. They also include some things you might not expect – for example, retirement accounts in foreign countries and accounts at gaming web sites located offshore.
Not everything foreign is a foreign financial account requiring FBAR filing.
A U.S. brokerage account that owns foreign stocks doesn’t trigger the FBAR requirement. Nor does ownership of a U.S. mutual fund that invests in foreign stocks or bonds. And direct ownership of a foreign corporation, partnership or loan is not a financial account -- though such assets could trigger other IRS reporting requirements.
The FBAR report is filed on Form 114; this form can only be filed electronically.
The FBAR requirement has surprised many taxpayers over the years, and the IRS can assess penalties of up to 50% of the account balance for each year of willful failure to file. The severity of the penalties and the obscurity of these rules has led the Treasury to implement programs to allow non-filers to come in from the cold.
The success of these has been mixed, as the IRS agents sometimes fail to distinguish between an honest ignorance of the rules and tax evasion.
Still, for most taxpayers who have relatively small account balances and who have no tax liabilities, the process of catching up on filing has become relatively painless.
To learn more about the FBAR requirements, visit this IRS foreign asset disclosure page. To learn more about the IRS relief programs, the “FAQ” on the Offshore Voluntary Disclosure Initiative is a good place to start.
If you think you may have back filings that need to be caught up, or if you have more questions, consult your tax advisor.