U.S. Tax Alert
U.S. TAX ALERT
IRS reminder on foreign financial account reporting requirements
Fact Sheet 2007-15
Noting that more and more people in the U.S. have foreign financial accounts, an IRS fact sheet reminds them that they may have to report their accounts to the government, even if the accounts don’t generate any taxable income. The fact sheet explains who must report and when, and the penalties for noncompliance.
Who must report. A U.S. person who owns a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account must file a Form TD F 90-22.1, Report of Foreign Bank and Financial Authority (FBAR), if (1) he has financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and (2) the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
RIA observation: Those who have a one or more foreign accounts holding assets that fluctuate greatly in value and that are close to the limit may have to monitor them very closely to know whether the $10,000 threshold has been exceeded at any time during a particular year. That’s because, if the threshold is exceeded on any day, reporting is required even if the value falls below the threshold for the rest of the year.
A U.S. person is a U.S. citizen or resident, or any domestic legal entity such as a partnership, corporation, estate or trust.
A foreign country includes all geographical areas outside the U.S., the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the U.S. An account in an institution known as a “ United States military banking facility” is not considered an account in a foreign country.
When to report. The FBAR is not an income tax return and should not be mailed with any income tax returns. It must be mailed on or before June 30 of the following year to U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621. Requests for an extension of time to file an FBAR are not granted.
Penalties for failing to file. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties or both. The maximum civil penalty for a willful violation of the FBAR reporting and recordkeeping requirements is now the greater of $100,000 or 50% of the balance in the account at the time of the violation. Non-willful violations can result in a penalty as high as $10,000 for each violation. Criminal violations can result in a fine and/or five years in prison.