SHOULD you report the accounts to the U.S. government if you have offshore bank accounts? Yes, if at any time during the year the aggregate balances exceed $10,000. What if you already had the accounts before you left for the U.S.? Yes, you should. There is a rationale why our government wants to know: fight terrorism, avert tax evasion, and combat money laundering. If you are not accountable of any of these conducts, then you have nothing to worry about. There is no harm, no foul in filing the report. But if you don’t file, there are penalties. Read on and learn about FBAR.
What is FBAR: It is a Report of Foreign Bank & Financial Accounts on FinCen Form 114 (was Form TD F 90-22.1).
What is FinCEN: Financial Crimes Enforcement Network was established by the U.S. Department of the Treasury as a resources of bringing information and people together to fight problem of money laundering.
Purpose of FBAR: FBAR filings in conjunction with suspicious activity reports, and other currency transaction reports are used by FinCEN to give law enforcement and regulators helpful information to fight against money laundering and other financial crime.
Who Must File the FBAR: A United States person must efile new FinCen form 114 (used to be form TD F 90-22.1) if that person has signature authority over or financial interest in any financial accounts in a foreign country and the combined value of these accounts exceeds $10,000 at any time during the calendar year, must report that relationship to the U.S. government each calendar year.
Certain individuals with signature authority only, filing deferral is effective through April 15, 2017 FinCEN Notice 2015-1.
Definition of a United States Person:
• A domestic corporation, domestic partnership, or limited liability companies organized in the U.S.
• A trust or estate formed under the laws of the U.S.
• A citizen or resident of the United States.
Definition of Foreign Financial Accounts:
• Securities accounts such as brokerage accounts, securities derivatives, and mutual funds.
• Bank accounts such as checking accounts, time deposits, and savings accounts.
• Accounts where assets are held in a commingled fund that is a mutual fund.
• Insurance policies with cash value i.e. whole life
• And are located outside the United States, Guam, Puerto Rico, U.S. Virgin Islands, District of Columbia, Northern Mariana Islands, American Samoa, Trust Territories of the Pacific Islands
Examples of Financial Interest:
• Mark, a US citizen, left bank accounts of more than $10,000 in Nicaragua. He must file FBAR.
• Same scenario as above except that Mark is a US resident (not a US citizen). He must file FBAR.
Reporting for Joint Accounts:
• A spouse who has a joint financial interest in an account with the filing spouse should be included as a joint account owner and he or she does not need to file a separate FBAR.
• If several persons each own a partial interest in an account, or if two persons jointly maintain an account, then each U.S. person has a financial interest in that account and each person must file an FBAR.
• If the filer’s spouse has separate accounts, that spouse must file a separate FBAR for all of the accounts, including those owned jointly with the spouse.
Recordkeeping: FBAR records should be kept for five years from the due date of the report which is the 30th of June of the following calendar year. The records should contain the following:
• Name and address of the foreign bank.
• Name and address of other person with whom the account is maintained.
• Type of account and maximum value of each account during the reporting period.
• Name maintained on each account and number or other designation of the account.
Penalties for Failure to Report Foreign Accounts:
• Should you fail to comply with FBAR rules, you may be subject to criminal penalties, civil penalties, or both.
• Civil penalty for failure to file an FBAR can be up to the greater of $100,000 or 50% of the total balance of the foreign account at the time of the violation. Ouch!
In accordance with IRS Circular 230, this communication is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.
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Sy Al-os Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.