Reporting Foreign Accounts May Be Required by 6/30

If you own or have signature authority over a foreign account, you may be required to file IRS Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). The filing deadline is June 30—and extensions are not granted. Income tax filing extensions do not include FBAR filing.

Accounts that require FBAR filing

FBAR filing requirements have been in place since the early 1970s. However, definitions related to foreign financial accounts have not been made very clear by the Treasury Department. Generally, the filing requirement applies to typical bank accounts, like a checking or savings account, as well as securities, securities derivatives or financial investment accounts. Other accounts or deposit-type arrangements may also be considered foreign financial accounts.

Recently the Treasury Department took the position that paying life insurance premiums in a foreign country is considered a deposit for the purpose of FBAR. Also, FBAR instructions indicate that a financial interest in a 401(k) account or mutual fund may require a filing.

Persons required to file an FBAR

You are required to file an FBAR if you meet either or both of the following criteria:

• You are a U.S. person who owns a foreign account which, at any point during the preceding calendar year, exceeded $10,000.
• You are a U.S. person with signature authority over an account which, at any point during the preceding calendar year, exceeded $10,000.

It should be noted that individuals required to file an FBAR must disclose this obligation on their IRS Form 1040.

Penalties for non compliance

Penalties for failure to file an FBAR increased significantly in 2004, as part of the American Jobs Creation Act. Penalties include:

• A civil fine of $10,000 for an involuntary failure to file (which, under certain limited circumstances constituting reasonable cause, may be waived).
• A civil fine of $100,000 or 50 percent of the amount of the transaction or of the balance of the account at the time of the infraction, whichever is the greatest, for a willful failure to file.
• A civil fine of $250,000 and five years in prison for a willful failure to file.
• A civil fine of $500,000 and 10 years in prison can be assessed for a failure to file that is part of criminal activity related to a failure to file.