IF you have offshore bank accounts, should you report the accounts to the US government? Yes, if the aggregate balances exceed $10,000 at any time during the year. What if you had the accounts before you left for the US? Yes, you should. There are reasons why our government wants to know: combat money laundering, fight terrorism, and avert tax evasion. If you are not guilty of any of these conducts, there is nothing to worry about. Filing the report causes no harm, no foul. But there are penalties if you don’t. Read on and learn about FBAR.
What is FBAR: It’s a Foreign Bank & Financial Accounts Report on FinCEN Form 114 (was Form TD F 90-22.1).
Who Must File the FBAR: A United States person must e-file new FinCEN Form 114 if that person has financial interest in or signature authority over any financial accounts in a foreign country and the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.
Definition of a United States Person:
1. A citizen or resident of the United States.
2. A domestic partnership, domestic corporation, domestic trust or estate.
Definition of Foreign Financial Accounts:
1. Bank accounts such as savings accounts, checking accounts, and time deposits.
2. Securities accounts such as mutual funds, brokerage accounts, and securities derivatives.
3. Accounts where assets are held in a commingled fund that is a mutual fund.
4. And are located outside the United States, District of Columbia, Guam, Puerto Rico, US Virgin Islands, American Samoa, Northern Mariana Islands, Trust Territories of the Pacific Islands
Examples of Financial Interest:
1. John, a US citizen, left bank accounts of more than $10,000 in the Philippines. He must file FBAR.
2. Same scenario as above except that John is a US resident (not a US citizen). He must file FBAR.
Reporting for Joint Accounts:
1. If two persons jointly maintain an account, or if several persons each own a partial interest in an account, then each US person has a financial interest in that account and each person must file an FBAR.
2. A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner and does not need to file a separate 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 June 30 of the following calendar year. The records should contain the following:
1. Name maintained on each account and number or other designation of the account.
2. Name and address of the foreign bank.
3. Name and address of other person with whom the account is maintained.
4. Type of account and maximum value of each account during the reporting period.
Penalties for Failure to Report Foreign Accounts:
1. You may be subject to civil penalties, criminal penalties, or both if you do not comply with FBAR rules.
2. The statutory civil penalty for failing to file an FBAR can be up to $10,000 for non-willful violation.
3. Penalty increases for willful failure to the greater of $100,000 or 50% of the total balance of the foreign account at the time of the violation. Ouch!
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Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in 704 Mira Monte Place, Pasadena, CA 91101. He has 50 years of experience in accounting, consulting, and tax work.
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Our readers may call (626) 744-0200 or email tax questions to [email protected]. Please visit our website for about 300 tax tips at www.victorsycpa.com.
