This article is focused on US citizens having dealings or personal connections to foreign countries and that have foreign bank, investment or any other financial accounts or whose signature authority is required for these bank or investments accounts maintained overseas.
Every US citizen having financial ownership or signature authority in financial accounts overseas is required to submit an FBAR or Foreign Bank Account Report electronically on the Form 114 especially when the collective value of such accounts is over $10,000 during the year. An overseas financial account includes an account opened outside the US even though it is maintained at a branch of a US bank. The term “financial accounts” includes; securities, savings, brokerage, checking, demand deposits, time deposits and other forms of accounts offered by any financial institution. The term “Financial Accounts” also relates to insurance products such as annuities, commodities and generally accounts that have some type of cash value. Furthermore, credit cards may be considered a financial account for the same circumstances. For the calendar year of 2014, FBARs must be filed electronically before or on the 30th of June, 2015. The form is always due on the 30th day of June of the following calendar year.
Failure to file FBAR is subject to burdensome civil and criminal penalties, such as follows:
· Not-willful violation – up to $10,000
· Willful violation civil– the larger of $100,000 or half of the total amount of the account measured when the violation was committed.
· Willful violation criminal- a fine not to exceed 250,000 or being imprisoned not to exceed 5 years. For some, both penalties could be charged.
Furthermore, certain individuals are required to file Form 8938, a declaration of particular overseas financial assets, if the financial accounts have a total value of $50,000 on the tax year’s last day or the value exceeds $75,000 anytime during tax year. For married individuals who are filing a joint return, they should file the form if the financial accounts have a total value of $100,000 on the tax year’s last day or the value exceeds $150,000 anytime during tax year. For certain individuals living overseas that claim a Foreign Earned Income Exclusion under Code Sec. 911(d)(1), the same form is required to be filed when the total value of the financial accounts on the last day of the year is more than $200,000 for single person and $400,000 for those who file a joint return or when the total value exceeds $300,000 for a single person or $600,000 for joint return any point in time within the tax year. However, there is an exemption no Form 8938 is required when the person or couple is not required filing a regular annual tax return.
Certain taxpayers that maybe required to file a FBAR are people that were US citizens or US resident aliens in any part of current tax year. A required filer also includes a non-resident alien making an election of to be taxed as US resident and non-resident aliens who are residents of American Samoa or Puerto Rico.
Financial accounts and foreign investments include unique investments that are not held in accounts administered by a foreign financial institutions such as stock or securities issued by non-U.S. persons, non-U.S.companies, and private contracts. Foreign financial interest does not include foreign real estate, actual foreign currency, U.S. mutual funds that own foreign assets, or U.S. brokerage accounts.
The penalties were highlighted above, however they get worse in certain circumstances. When there is a failure to file for more than 90 days and the IRS mails notice of the failure to the individual, a supplementary penalty of $10,000 is accrued each 30-day period. The supplementary penalty will not exceed of $50,000.
Need to file, or are uncertain whether you are, or will be, required to file, a FBAR or a Form 8938? Contact us to discuss your situation and the best way to proceed.
Peter Rudolph, CPA
Accountant Pompano Beach