FBAR Reporting Deadline Approaching

This is an important reminder for owners of a financial interest in a foreign financial account that FBARs must be received by the IRS on or before June 30, 2011

Individual and corporate U.S. taxpayers are required to annually disclose to the Treasury the existence of a financial interest in, or signature authority over, a financial account located in a foreign country. Owners with an interest in, or signature authority over, foreign financial accounts that had an aggregate balance that exceeded $10,000 at any point during the tax year must complete the Report of Foreign Bank and Financial Accounts, Treasury Form TD F 90-22.1 (FBAR). An owner with a “financial interest” in an account includes owners of record and holders of legal title to the foreign financial account. The term owner also includes direct or indirect ownership of more than 50 percent (by voting power, share value, partnership profits, partnership capital, or beneficial ownership of a trust) of an entity that owns a foreign financial account. The FBAR form must be completed and received by the Treasury on or before June 30 each year (no extensions are granted). Unlike U.S. income tax returns, FBAR forms are deemed filed when received by Treasury rather than the postmarked date. We recommend using a method of delivery with confirmation to ensure that the report is timely filed. Taxpayers that are required to file the report but that do not do so by the June 30, 2011 deadline are subject to a penalty.

Willful failure to file an FBAR carries a penalty as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

Extension for Certain Individuals with Signature Authority Only
On May 31, 2011, Treasury’s Financial Crimes Enforcement Network (FinCEN) and the IRS announced the following individuals have an extended FBAR filing deadline of June 30, 2012 for FBARs related to the 2010 tax year:

  • Employees or officers of regulated entities (as specified in FBAR regulations) who have signature or other authority over and no financial interest in a foreign financial account of an entity more than 50 percent owned, directly or indirectly, by the regulated entity (a “controlled person”).
  • Employees or officers of a controlled person of a regulated entity who have signature or other authority over and no financial interest in a foreign financial account of the regulated entity or another controlled person of the regulated entity.

Note that this extension is not applicable to individuals with a financial interest in a foreign financial account. All other U.S. persons required to file an FBAR this year are required to meet the June 30, 2011 filing date.

OVDI Relief for Certain Prior Unfiled FBARs
The IRS recently updated its Offshore Voluntary Disclosure Initiative (OVDI), which allows corporate officers with no financial interest, but with a signature authority in a foreign account, to bring PRIOR YEARS into compliance with no penalty in accordance with Q&A 17 of the initiative. Q&A 17 is reproduced below:

Question: I have properly reported all my taxable income but I only recently learned that I should have been filing FBARs in prior years to report my personal foreign bank account or to report the fact that I have signature authority over bank accounts owned by my employer. May I come forward under this new initiative to correct this?

Answer: The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to come forward voluntarily and resolve their tax matters. Thus, if you reported and paid tax on all taxable income, but did not file FBARs, do not use the voluntary disclosure process.

Taxpayers who reported and paid tax on all their taxable income for prior years, but did not file FBARs, should file the delinquent FBAR reports according to the instructions (send to Department of Treasury, Post Office Box 32621, Detroit, MI 48232-0621) and attach a statement explaining why the reports are filed late. The IRS announced that it will not impose a penalty for the failure to file the delinquent FBARs if there are no underreported tax liabilities and the FBARs are filed by Aug. 31, 2011 (unless a request for extension is made pursuant to FAQ 25.1 of the OVDI, as updated June 2, 2011). However, FBARs for 2010 are due on June 30, 2011 (unless the extension applicable to certain individuals with signature authority only, as announced by FinCEN and IRS, applies; in which case, the FBAR is due on June 30, 2012).This is an update to a previous article IRS Offers Second Chance to Disclose Unreported Foreign Assets.

If you have questions regarding the FBAR reporting or the filing deadlines, please consult your tax advisor.

Patti Burquest, Managing Director, Washington National Tax
Bob Adams, Managing Director, Washington National Tax
Larry LeBlanc, Managing Director, International Tax, Vienna, VA