Your 1040 is filed, but are you done? Not if you have foreign financial assets!



April 18, 2016

Private Clients Alert

U.S. citizens, residents and legal entities have until June 30, 2016 to file their 2015 Report of Foreign Bank and Financial Accounts.  An FBAR must be filed by those who have a financial interest in, or signature or other authority over, foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year. Those who do not comply with the filing requirement may face steep civil penalties and criminal sanctions.

U.S. persons have until June 30, 2016, to file their 2015 Report of Foreign Bank and Financial Accounts (“FBAR”). There are no filing extensions available for the FBAR, but some filings may be deferred until June 30, 2017. Those who do not comply with the filing requirement may face steep civil penalties and criminal sanctions. Our attorneys and professional specialists can help you assess whether you are subject to the FBAR reporting requirements and whether you qualify for the limited filing deferral.

The FBAR is entirely separate from any required U.S. income tax return and must be filed electronically using a specific e-filing system administered by the Department of Treasury Financial Crimes Enforcement Network, or with software used by certain tax preparers.

Who needs to file an FBAR?

An FBAR must be filed for any U.S. person who has a financial interest in, or signature or other authority over, foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year.

A U.S. person is (i) a U.S. citizen; (ii) a U.S. resident (including green card holders living offshore); or (iii) an entity, such as a corporation, partnership, trust or limited liability company, formed under U.S. law. (A U.S. lawful permanent resident who elects under a tax treaty to be treated as a non-resident for federal tax purposes must still file an FBAR.)

IRS guidance on the FBAR indicates that a person holding a power of attorney, the “agent,” generates in the agent the same obligation to file an FBAR with respect to foreign financial accounts as the U.S. person owning the account. The agent, therefore, is liable for non-filing, along with the principal, if the power of attorney gives the agent signature authority over a foreign account that exceeds the $10,000 threshold.

Individuals with signature authority over, but no financial interest in, foreign accounts of their employer, may be able to defer the filing of their FBAR to June 30, 2017.

What accounts should be listed on an FBAR?

The filing requirement applies to financial accounts such as bank, securities, security derivatives, debit card, prepaid credit card and any other financial instrument accounts with an aggregate value exceeding $10,000 at any time during the calendar year. An FBAR is required whether or not the account generates any income.

What should you do if you had foreign accounts exceeding $10K in 2015?

You should electronically file an FBAR for 2015 by June 30, 2016, using FinCEN Form 114. Paper filing is no longer allowed.

Failure to file an FBAR on a timely basis can result in severe civil penalties of up to the greater of $100,000 or 50% of the value of the unreported foreign accounts, for willful violations.

Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation.

The IRS may also impose criminal penalties for willful failure to file an FBAR of up to $250,000, five years of imprisonment (or both), or up to $500,000 and 10 years of imprisonment if the non-compliance is in conjunction with other criminal activity.

What should you do if you had foreign accounts exceeding $10K before 2015?

It is not too late to report your foreign financial accounts. In fact, the IRS has an Offshore Voluntary Disclosure Program for those U.S. persons who have income generated in foreign accounts that was not previously reported on an FBAR.

How will the IRS identify my foreign accounts?

Under the U.S.’s Foreign Account Tax Compliance Act (“FATCA”) reporting requirements, foreign financial institutions can be penalized for failing to properly report and (in some cases) withhold U.S. taxes on their U.S. customers’ accounts.

The U.S. government is steadily increasing the pressure it applies on foreign financial institutions to report U.S. persons’ account information.

How can we help you?

Our attorneys and professional specialists can help you assess whether you are subject to the FBAR reporting requirements, prepare your current FBAR filing and assist you with submitting an application to the IRS Offshore Voluntary Disclosure Program for prior years.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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