Calvetti Ferguson

Foreign Bank and Financial Accounts (FBAR) Deadline

June 30th 2014: Foreign Bank and Financial Accounts (FBAR) Deadline by Mario E. Garcia, CPA, International Tax Partner

The 2014 FIFA World Cup Brazil (www.fifa.com/worldcup/) begins June 12, 2014.  This will be the second time that Brazil has hosted the competition since 1950.  Brazil was elected unchallenged as a host nation in 2007 after the FIFA decreed that the tournament would be staged in South America for the first time since 1978 in Argentina. 

The national teams of 31 countries advanced through qualification competitions that began in June 2011 to participate with the host nation Brazil.  A total of 64 matches are to be played in twelve cities across Brazil in either new or redeveloped stadiums.  Although the United States continues to be the land of American Football, the U.S. soccer team continues to improve and comes to the 2014 games with a lot of high expectations.  The U.S. team is part of Group G, which includes Germany, Portugal, and Ghana; not an easy feat. 

One international area where the U.S. is truly a big player is among the foreign financial institutions that house accounts for U.S. taxpayers.  Generally, the U.S. requires U.S. taxpayers to disclose bank accounts and balances in excess of $10,000 in a Form 114, Report of Foreign Bank and Financial Accounts (“FBAR” and f/k/a TD F 90-22.1).

Background and Evolution on the FBAR Filing Requirements

Many people have financial accounts in foreign countries and more and more are disclosing them as a result of recent, heightened IRS scrutiny and compliance efforts focused on preventing the international criminal, tax evasion, and terrorism threats to the U.S. government.   Until a few years ago, the IRS had full investigatory and enforcement authority as delegated by the U.S. Treasury Departments. 

However, starting with the tax year 2013, these filing requirements have been assigned to the Financial Crimes Enforcement Network (“FinCEN”).  FinCEN is a bureau of the U.S. Treasury Department, and its mission is to safeguard the financial system from illicit use, combat money laundering, and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities, including the IRS. 

Thus, for 2013 FinCEN requires that Form 114, Report of Foreign Bank and Financial Accounts (the current FBAR form) be filed in place of the old Form TD F 90-22.1 by June 30, 2014.  This new form is only available and must be filed online through the BSA E-filing System website. 

 Who Must File an FBAR?

Any of the following U. S. persons (which include legal entities organized in the U.S. and U.S. individuals) that have a financial interest in or signature authority over a foreign financial account if the aggregate value of the foreign financial account exceeds $10,000 USD at any time during the calendar year must file an FBAR:

  1. U.S. shareholder (directly or indirectly) owning more than 50% of a foreign entity (foreign financial interest),
  2. U.S. partner (directly or indirectly) owning more than 50% of a foreign partnership (foreign financial interest),
  3. A trust of which the U.S. person is (1) the trust grantor and (2) has an ownership interest in the trust for U.S. federal income tax purposes (foreign financial interest),
  4. Any trust in which the U.S. person has a greater than 50% present beneficial interest in the assets or income of the trust (foreign financial interest),
  5. Any other entity in which the U.S. person owns greater than 50% of the voting power, total value of equity interest or assets or interests in profits (foreign financial interest – “catch-all” provision),
  6. U.S. person  that is the direct owner of record or holder of legal title of the foreign financial account, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person (foreign financial interest), or
  7. A U.S. person that has signature authority (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) (signature authority over any of the above foreign financial interests).
  8. Examples of possible FBAR filers may include:
    1. American citizens living abroad with foreign bank accounts
    2. International entity structures of privately held businesses (U.S. holding companies)
    3. U.S. tax residents based on Substantial Presence Tests  in spite of applicability of U.S. and local country tax treaty
    4. Internationally expanding companies (inbound and outbound)
    5. International executives – CEOs, CFOs, Treasury/Cash Management Department employees
    6. Foreign nationals working and living in the U.S.
    7. High-net worth individual with international portfolios

Exceptions to the Reporting Requirement

Generally, the following filing exceptions for U. S. persons or foreign financial accounts may apply:

  1. Certain accounts jointly owed by spouses,
  2. Cosolidated FBAR,
  3. Correspondent/Nostro Account,
  4. U.S. governmental entity,
  5. International financial institution,
  6. IRA owners and beneficiaries,
  7. Participants in and beneficiaries of tax-qualified retirement plans,
  8. Trust beneficiaries,
  9. U. S. military banking facility,
  10. Signature Authority exception applies to:
    1. Officers of banks or financial institutions
    2. Officers of entities whose equity is publicly traded in a U.S. national exchange

Coordination with Taxpayer’s Income Tax Returns

A U.S. person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income.  All U.S. persons with an FBAR filing requirement must meet this filing obligation by answering a “yes” or “no” question on Form 1040, schedule B and filing the FBAR.

Additionally, U.S. persons with specified foreign financial assets that exceed certain thresholds must report those assets on the IRS Form 8938, Statement of Foreign Financial Assets, which is filed with the income tax return.  A U.S. person with these types of assets would file the Form 8938 in addition to the Form 114.  The form 8938 may be used to match the income from the foreign financial accounts.

Form 114 – Information Required for Filing

General Information

Method of Filing (directly by U.S. Person or Third Party Preparer) E-file Only via the BSA E-filing System (CPAs, Attorneys, or Enrolled Agents may assist with the e-filing of the form)
If using a CPA, Attorney or Enrolled Agent Must file a FinCen Form 114a – FinCen E-filing Signature Authorization Record with your CPA, Attorney or Enrolled Agent to allow the forms be filed on your behalf
Deadline for 2013 FBARs June 30, 2014 No extensions allowed Must be received on or before June 30th
Record-keeping Requirements Except for officers and employees filing on the basis of signature authority, all U.S. persons must retain all supporting documentation for a period of 5 years starting with June 30, 2014 for the 2013 reports.
Valuation for $10,000 USD threshold Must report maximum account value – maximum may be met through a single account or if aggregate account values of multiple accounts exceeds $10,000 Convert to USD if non-USD Currency based on TFMS Rate (www.fms.treas.gov) for the last day of the calendar year If no TFMS Rate is available, use another verifiable exchange rate and reference.

                               

Specific Information

Filer Information (Part I)

Type of Filer Individual Partnership, Corporation, Fiduciary Consolidation
U.S. Taxpayer Identification Number Social Security Number (SSN) Individual Taxpayer Identification Number (ITIN) Federal Employer Identification Number (FEIN)
Foreign Identification Required if no U.S. ID number Passport or Foreign TIN Number and Country
Individual filer date of birth Format must be in MM/DD/YYYY
Filer Name Last Name or Organization Name First Middle
Filer Address Mailing Address (Number, Street and Apt or Suite No)
City, State ZIP
Country
Filers with a financial interest in more than 25 or more financial accounts Total number of accounts is needed if yes Filers with signature authority but no financial interest in 25 or more financial accounts Total number of accounts if yes

Information on Financial Account(s) Owned Separately – includes financial interest accounts (Part II)

The information included in Part II refers to the filer; therefore, it is not separately entered.

Information on Financial Account(s) Owned Jointly (Part III)
(If Joint Accounts, Form 114a must be signed by both spouses)

Principal Joint Owner information: Taxpayer Identification Number TIN type: SSN/EIN/ITIN Last Name or Organization Name, First Name, M.I. Address

Information on Financial Account(s) Where Filer has Signature Authority or Other Authority but No Financial Interest in the Accounts (Part IV)

Owner Information: Taxpayer Identification Number TIN Type: SSN/EIN/ITIN Last Name or Organization Name, First Name, M.I. Address Filer’s Title with this Owner

Information on Financial Account(s) Where Filer is Filing a Consolidated Report (Part V)

Owner information: Taxpayer Identification number TIN Type: SSN/EIN/ITIN Address

Bank Account Information Required to each, Part II, III, IV and V
(Provide for each account listed under each part in addition to the part-specific information)

Maximum Account Value (If max value is unknown, then confirm) Type of Account: Bank, Securities or Other Foreign Financial Institution Name and Address Bank Account Number or Other Designation

 

Signature and Penalties and Reasonable Cause

The electronic signatures and those provided to your CPA, Attorney or Enrolled agent via Form 114a are made under penalties of perjury.  Failure to file may cause taxpayers to be subject to a civil penalty not to exceed $10,000 per violation.  If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty may be imposed.  Much stricter monetary penalties, including criminal penalties, may apply when the failure to report the foreign bank account is considered to be a “willful” act. 

2012 Offshore Voluntary Disclosure Program

As previously mentioned, the IRS and other U.S. financial authorities are continuing their efforts to address the international financial crimes.  In particular, the IRS maintains an open-ended offshore voluntary disclosure program (“OVDP”) that began in early 2012.  The OVDP encourages taxpayers to come forward with undisclosed/untaxed income deposited in foreign bank accounts in exchange for monetary penalties and reduced or no criminal prosecution that otherwise would exist if discovered through a regular IRS audit.  This process is costly and requires working with legal counsel to afford the attorney-client communication protection per the attorney-client privileges.   

As we enter the month of June, if you or someone in your organization is described as a potential U.S. person, expect to be asked not just about how the U.S. soccer team or your favorite team is performing but also about the FBAR filing requirement.  We can certainly help you sort through and comply with these changing filing requirements as the June 30th deadline approaches.  Please do not hesitate to contact us at (713)726-5300 to speak with a CalvettiFerguson tax professional about the FBAR and related requirements.

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