March means different things to different people. Spring flowers. Longer days. College Basketball. It’s also a time people start to think about their own income tax returns. Deadlines arise in the spring and March 15th is just one such deadline for some US corporations and those individuals that are required to ensure a non-US trust meets any US reporting obligations. These US corporations and non-US trusts required to file US returns can file extensions on or before March 15th to extend the time to these US returns.
One information reporting form, while not due in March, is getting some recent attention. US persons who have a financial interest in or signature authority over at least one financial account outside of the United States and the aggregate value of all non-US accounts exceeded US$10,000 at any time during the calendar year, are required to file FINCEN Form 114, Report of Foreign Bank and Financial Accounts (formerly known as Form TD F 90-22.1, Foreign Bank and Financial Account Reporting Form and referred to hereafter as “FBAR”).
Types of Accounts Included
FBAR is an information return that summarizes details of a US person’s non-US bank and financial accounts. There is no tax to pay with the return, but as discussed below there can be significant penalties assessed for failure to timely file the form. Non-US accounts that US persons can have a financial interest in can include but are not limited to:
- Checking and savings accounts;
- Investment accounts (both non-registered investment accounts and Tax Free Savings Accounts);
- Pension accounts (a Registered Retirement Savings Plan and a Registered Pension Plan account);
- Accounts in Canadian corporations controlled by US persons;
- Insurance policies with a cash surrender value;
- Registered Education Savings Plan accounts.
Non-US accounts that US persons can have signature authority over include but are not limited to:
- Joint accounts with their family members;
- Employer bank accounts;
- Volunteer organization bank accounts.
For the 2015 year, the FBAR is due on or before June 30,, 2016 without extensions. The form should be electronically filed to avoid penalties.
The US can assess penalties of US$10,000 per violation and much more if the violation is considered willful or negligent. The US Department of Justice has been aggressive in assessing these penalties on those engaged in criminal activities and/or evading income tax. Last year, a US court released details on former FIFA executive Chuck Blazer guilty plea to charges that included bribery, money laundering and tax evasion. As part of his settlement, he paid close to US$500,000 in penalties for failure to file FBARs for his Bahamian bank account.
Last year, the IRS announced changes to the filing deadline of the FBAR Form. The due date of the form will now be April 15th instead of June 30th to coordinate with an individual’s personal US tax filing deadline. Extension requests will now be allowed to extend the time to file the form. The changes will be in effect for the 2016 tax year and will start to have an impact starting in spring 2017.
Earlier this week, the US Department of Treasury proposed changes to the requirements of some financial professionals who file FBARs due to their employment. Under the proposal, no longer can individuals exempt themselves from listing the details of all of their accounts if they have 25 or more. Instead, all details for all accounts would need to be reported each year. The other significant change is the elimination of the requirement for officers and employers to report institutional accounts where they have signature authority but no financial interest. This elimination would apply so long as the employer also has a FBAR filing obligation. The US Department of Treasury is accepting comments on the proposed changes over the next seven weeks with the changes taking effect next year.
While there has been much written about the FBAR form over the past few years, there still remains a large difference between the number of US persons living abroad and the number of FBARs filed. Recent data from the US Department of State showed that while there are an estimated 8.7 million US citizens living outside the US, only 1.16 million FBAR forms were filed in 2015. There are some reasons for the differences including those in the group of 8.7 million US citizens abroad that may not have more than US$10,000 in non-US bank accounts (i.e. minor children). Still, the difference shows that many are not aware of their FBAR filing responsibilities.
Correcting Past Delinquent FBARs
US persons that have not timely filed FBAR forms may seek relief from penalties. Individuals may be eligible for one of the US’s amnesty programs and are encouraged to seek professional advice. Further information on the US’s amnesty programs can be found on our blog: