Often I am asked about offshore banking and setting up offshore accounts for people or companies, which I have done several times. However this is part of the education process – knowing what you have to report to the government for the privilege to move and protect some your assets off shore. Can it be done successfully? Absolutely. Can you save taxes? Absolutely. Can you protect your assets? Absolutely.
We all believe that our government has become so onerous that many people are leaving for other countries simply because Americans are not free anymore. A couple weeks ago I listened to David Barton speak and he said that if you “read 100 pages per day of all federal laws, seven days per week, it would only take you 25,000 years to complete the reading”. We are responsible to follow all those laws – ignorance is no excuse for breaking a law, right? Well here is another example of over-reach and being worked over by the federal government all in the name of protecting us against us. If you think you can hide your money some place, guess again…
Recently, new guidelines were released in a report of the Foreign Bank and Financial Accounts (FBAR). You need to know about these new guidelines if you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account that exceeds certain thresholds. The Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service.
The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. (FinCEN stands for Financial Crimes Enforcement Network).
The FBAR is not filed with a federal tax return. A filing extension, granted by the IRS to file an income tax return, does not extend the time to file an FBAR. There is no provision to request an extension of time to file an FBAR.
United States persons are required to file an FBAR if:
- The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
(United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.)
There are some exceptions to the FBAR reporting requirements. They can be found in the FBAR instructions, but they include:
- • Certain foreign financial accounts jointly owned by spouses;
- • United States persons included in a consolidated FBAR;
- • Correspondent/nostro accounts;
- • Foreign financial accounts owned by a governmental entity;
- • Foreign financial accounts owned by an international financial institution;
- • IRA owners and beneficiaries;
- • Participants in and beneficiaries of tax-qualified retirement plans;
- • Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
- • Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust); and
- • Foreign financial accounts maintained on a United States military banking facility.
A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
Just in case you were beginning to think perhaps you would just ignore all these forms and filing procedures, FinCEN does not mess around when it comes to penalizing non-filers. A person who is required to file an FBAR and fails to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation. There are exceptions to the penalties, such as when natural disasters occur that hinder timely filing. For guidance on those exceptions, see FinCEN guidance, FIN-2013-G002 (June 24, 2013).
FinCEN Notice 2013-1 extended the due date to June 30, 2015 for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity.
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. The new Form 8938 filing requirement is in addition to the FBAR filing requirement.
Last year there were a number of new forms introduced by FinCEN. FinCEN form 114 is the new FBAR form that is to be used in place of the old TD F 90-22.1 form. This form is designed to be an online form through the BSA E-Filing System website. Form 114a is a new form for filers who submit FBAR's jointly with spouses or who have a third party prepare their forms for them. It isn't submitted with the filing, but is kept back with the FBAR records maintained by the account owner in case FinCEN or the IRS requests them.
The following educational products have been developed for your use in learning more about why, when and where to file the FBAR: