If you have a financial interest in or signature authority over a non-U.S. financial account, you're probably familiar with Form TD F 90-22.1. Starting with the 2013 tax year, U.S. tax filers must instead file new FinCEN Form 114. Normally referred to as the FBAR (or Foreign Bank Account Report), it is due June 30th of each year, for the previous calendar year. This form does not have an extension of time to file and there could be substantial penalties for the failure to timely file.
FinCEN Form 114 is required to be filed, if during 2013:
- You had a financial interest in or signature authority over at least one foreign financial account (which can be anything from a securities, brokerage, mutual fund, savings, demand, checking, deposit, time deposit to a commodity futures or options account, a whole life insurance, or a cash value annuity policy) and;
- The aggregate value of all such foreign financial accounts exceeded $10,000 at any time during 2013.
For 2013 reports, there has been a significant change to the FBAR program concerning how reports are filed. Reporting is still required by June 30th, without extension. The definitions of non-U.S. financial account, financial interests, who has to file, etc. are unchanged; and the penalties are the same as they were in prior years. However, Form TD F 90-22.1 has been retired and has been replaced by the Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts. In addition, the new form can only be filed electronically and must be filed through the Bank Secrecy Act (BSA) E-Filing system. An attorney, CPA, or enrolled agent may file an FBAR on your behalf, if you have provided authority to them in advance on BSA Form 114a.
The purpose of the FBAR is that, while U.S. persons can maintain overseas financial accounts for a variety of legitimate reasons, FBARS are deemed necessary because foreign financial institutions are not subject to the same information return reporting requirements as domestic financial institutions. The IRS and the Treasury Department also use the FBAR to identify persons who may be using foreign financial accounts to circumvent U.S. laws. Information in an FBAR can be used to identify or trace funds used for illicit purposes, and to identify unreported income held or earned abroad.
Holders of interest bearing accounts should keep records of their accounts for five years after the due date of the FBAR. The record should include the name on each account, the account designation, the name and address of the foreign bank, brokerage, or institution in which the account is maintained, the type of account, and the maximum value during the reporting period. Failure to file an FBAR can result in civil and/or criminal penalties. Potential penalties include the following:
- Negligent violation – a civil penalty up to $500;
- Non-willful violation – a civil penalty up to $10,000 per violation;
- Pattern of negligent activity – not more than $50,000 (plus penalties described above);
- Willful violation (failure to file or retain records) – civil penalty up to the greater of $100,000 or 50% of the account value at the time of the violation and criminal penalties of up to $250,000, five years in prison, or both;
- Willful violation accompanied by violating certain other laws – potential criminal penalties increase up to $500,000, 10 years in prison, or both; and/or
- Knowingly and willfully filing a false FBAR – civil penalties up to the greater of $100,000 or 50% of the account value at the time of the violation and criminal penalties of $10,000, five years in prison, or both.