Foreign Reporting: Does it apply to you?

Taxpayers that have a financial interest in – or signature authority over – foreign financial accounts with a combined balance greater than $10,000 are required to file an FBAR Report (Foreign Bank and Financial Accounts) annually with the Federal Crimes Enforcement Network (FinCen).

Financial Interest in a Foreign Account

What does financial interest in a foreign account mean?

• You own the account;
• An agent acting on your behalf owns the account;
• The account owner is a corporation and you own more than 50% of the shares or voting power of stock;
• The account owner is a partnership and you own more than 50% of the partnership’s profits, losses, or capital; or
• The account owner is a trust where you are the grantor and you have an ownership for federal tax purposes.

Who must file? 

You must file an FBAR if you are a domestic entity (including corporations, S-Corps, LLCs, partnerships, trusts, etc.) or an individual (including U.S. citizens or resident aliens) that has an interest or signature authority over one or more foreign financial accounts whose aggregate balance exceeded $10,000 at any time during the previous calendar year.

For example, assume you are a CEO and 100% owner of an S-Corp and have signature authority over all bank accounts. The S-Corp has a bank account in France which had a balance of $12,000 in June. Since the account was over $10,000 during the year, the S-Corp is required to file an FBAR and you must also file an FBAR to report your authority over the account.

Any person that holds a foreign financial account may have a reporting requirement even when the account produces no taxable income. If you are required to file an FBAR, you need to list all of your overseas accounts regardless of the balances.

When is the FBAR due? 

The due date for FinCen Report 114 (FBAR) is now April 15, and can be automatically extended to October 15 with no formal extension request. For 2016 the due date is April 18, 2017, consistent with the federal income tax due date.

Civil penalties for failing to properly file an FBAR can vary from $10,000 to the greater of $100,000 or 50 percent of the account balance per year.

I have not been filing the FBAR. What do I do?

You can enter the IRS’ Offshore Voluntary Disclosure Program which allows non-willful offenders to enter the program and file delinquent FBARs with a reduced penalty of 27.5%. For certain eligible taxpayers, there are streamlined procedures dropping the penalty to only 5% of the foreign financial assets that gave rise to the tax compliance issue. This is not a permanent IRS program and could be suspended at any time.

The IRS provides current up-to-date FBAR guidance on their website.