FBAR Compliance
FBAR Compliance Team Lead
Former DOJ Trial Attorney
Contact John directlyAmerican citizens who have financial assets outside of the country have additional reporting requirements to make alongside their tax filings, most notably the FinCEN Form 114, Report of Foreign Bank and Financial Accounts, or FBAR. These requirements are backed with new enforcement mechanisms, as well, so lots of people have to catch up on the developments or risk exposing them to legal liabilities that come with non-compliance. Worse, the penalties for that non-compliance are shockingly high, elevating the need for U.S. nationals to pay attention to the new requirements.
The FBAR lawyers at Oberheiden P.C. help individual Americans and corporations who have offshore assets comply with these important tax rules and avoid the serious repercussions of a violation.
What is an FBAR Report?
The FBAR is a reporting requirement alongside your federal tax filing. It only applies to certain individuals and business entities that have offshore accounts.
Created as a part of the Bank Secrecy Act, the FBAR report gives Americans the opportunity to voluntarily disclose any assets that they have overseas. This gives the U.S. Treasury Department and the Internal Revenue Service (IRS) the data that they need to detect unlawful transactions and potential attempts at tax evasion.
The FBAR report is made to the Financial Crimes Enforcement Network (FinCEN) at the Department of Treasury on Form 114. It has to be filed by the April 15 following the calendar year being reported.
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Who Does FBAR Regulate?
Not everyone has to worry about FBAR. You only have to file an FBAR report if you are a covered entity with an adequate aggregate maximum value of overseas assets.
The following types of individuals and entities can conceivably be subject to FBAR reporting requirements:
- U.S. citizens, including those living abroad
- U.S. residents
- Corporate entities organized in the United States, including:
- Corporations
- Partnerships
- Limited liability companies (LLCs)
- Estates or trusts formed under United States law
While this range of individuals and entities seems extremely broad, they are only subject to FBAR requirements if they meet the maximum aggregate value condition of $10,000. This means that you only have to file an FBAR report to FinCEN for any year in which all of your personal or corporate offshore accounts exceeded $10,000 in a single calendar year.
Note that this is a collective amount: If you have two offshore accounts and each has $9,000 in it, you would have to make an FBAR disclosure because, in the aggregate, they totaled more than $10,000. However, if one of those accounts was owned by you, individually, while the other was owned by a corporation, they may not trigger FBAR reporting requirements unless there are other issues at play.
Accounts are considered “offshore accounts” if they fall within the Bank Secrecy Act’s definition of “foreign financial accounts.” This definition is very broad. It includes any of the following types of accounts that are located outside of the U.S., including in a foreign branch of a bank that is based in the United States:
- Savings accounts
- Checking accounts
- Securities accounts
- Mutual funds
- Futures accounts
- Options accounts
- Insurance policies that have a cash value
There are a few limited exceptions to the people or entities that have to file an FBAR report. These exceptions are small, though, so the general rule is that, if you are a U.S. citizen or resident or company, and you have more than $10,000 in offshore accounts, you have to make a FBAR filing.
If you fall anywhere close to this definition, you should strongly consider seeking the help of a federal tax lawyer. The penalties of not filing when you have a legal obligation to do so are very high.
How is the FBAR Filed?
While it is a tax document, and while violations are enforced by the IRS, FBAR reports are not filed with the IRS. Instead, the FBAR is filed with FinCEN, the bureau of the U.S. Treasury Department that analyzes foreign financial transactions for illegality. The reports can be filed online through FinCEN’s BSA E-filing system, and are due by the April 15 following the reporting period.
The interrelation between the IRS and FinCEN over FBAR filings is complex. In short, you file your FBAR report with FinCEN, but will hear back from the IRS, and both agencies are involved in enforcing potential violations.
Under 31 C.F.R. § 1010.420, if you file an FBAR report, then you are obligated to keep a record of it for at least 5 years. Those records have to be made available upon request, and must include:
- The name on each account
- Account numbers or other designation
- The name and address of the foreign bank, person, or entity that maintains the account
- What type of account it is
- The maximum value of each account during the reporting period
What are the Penalties for Non-Compliance?
The penalties for not filing an FBAR report, or for filing one that is negligently inaccurate, are extremely high. If the discrepancies are deemed to be willful by the IRS, they are even higher.
If the IRS deems that the violation was not willful, then you can be eligible for the agency’s Streamlined Domestic Offshore Procedure. This process lets you bring your foreign asset reporting requirements and tax obligations into compliance at a penalty of 5 percent of the highest aggregate balance of all of your non-compliant foreign accounts.
If your violation was labeled willful, though, you can face criminal charges of tax evasion. The IRS, however, lets you avoid the potential for criminal liability if you submit to the Offshore Voluntary Disclosure Program (OVDP). Under this Program, you have to make a “complete and transparent” effort to pay back any outstanding taxes on your foreign assets and return to FBAR compliance. That outstanding tax obligation, however, includes a 27.5 percent penalty on the highest aggregate balance from your non-compliant foreign accounts during the look-back period.
Unfortunately, the factors that the IRS uses to determine whether a foreign asset disclosure was “willful” or not are vague at best. To make matters worse, you have to request either the OVDP or the Streamlined Domestic Offshore Procedure as your preferred resolution method. If you apply for the Streamlined Domestic Offshore Procedure and then the IRS rejects your application because there are signs that the lack of disclosure was “willful,” the OVDP option is off the table and your attempt to make use of the lower penalty can expose you to criminal liability for tax evasion.
Some Frequently Asked Questions About FBAR Compliance
The FBAR reporting requirement is independent of the Foreign Account Tax Compliance Act (FATCA). However, some of the same people who have to comply with the FATCA also have to independently comply with FBAR, as well. Additionally, the FATCA puts reporting requirements on foreign banks and other financial institutions that makes it even more important for you to comply with your FBAR obligations.
The FATCA does two things that are important for U.S. individuals and entities with foreign assets:
- It requires you to report them to the IRS, and
- It requires the foreign financial institutions that have your funds to report them to the IRS.
You have to report foreign financial assets on IRS Form 8938 if they exceed the appropriate reporting threshold for the FATCA. For 2021, the lowest reporting threshold was for unmarried taxpayers and specified domestic entities, and was either:
- $50,000 on the last day of the tax year, or
- $75,000 at any time during the tax year.
However, the FATCA also works behind the scenes for U.S. persons or entities that have fewer foreign assets, but still enough to trigger FBAR obligations. The FATCA requests foreign banks and other financial institutions to provide information about accounts held by U.S. taxpayers, or face a 30 percent tax and potentially get excluded from American financial markets. Tens of thousands of foreign institutions have decided to report on their American customers rather than face the penalties. This has raised the risks of non-compliance with FBAR: Now the IRS is getting the same information from multiple sources – from you, in your FBAR report, and from your foreign financial institution, through its FATCA disclosure. Not making an accurate FBAR report can easily lead to legal jeopardy and potentially to allegations of criminal tax evasion.
How Long Has the FBAR Filing Requirement Been Around?
FBAR forms have been required since the passage of the Bank Secrecy Act in 1970. While the particular forms have changed over time, the general reporting requirement has been in existence for over 50 years.
However, the passage of the Foreign Account Tax Compliance Act (FATCA) in 2010 heightened the need for strict compliance with FBAR obligations. Before the FATCA was passed, there was little way for the IRS to check FBAR disclosures against other data about foreign assets of U.S. nationals. Now, FATCA disclosures from international institutions can reveal misleading or inaccurate statements about foreign assets held by Americans, providing strong evidence of misconduct that can only be avoided through strict FBAR compliance.
Why Doesn’t Oberheiden P.C. Call Itself the Best FBAR Compliance Team?
Because we prefer to let our record speak for itself. We have assisted countless U.S. individuals and entities with substantial assets abroad protect their finances and futures, even when damning evidence of past non-compliance has surfaced.
FBAR Compliance Lawyers at Oberheiden P.C.
Given the extremely high penalties for FBAR non-compliance, it is essential to do things right and avoid investigation. The tax lawyers at Oberheiden P.C. can help. Contact them online or call their law office at (888) 680-1745 to get started today.