Archive for the ‘FBAR’ Category

What is ‘FBAR’?

Foreign Bank Account Reporting
Form TDF 90 221

It is a simple form used to collect basic information on financial accounts overseas where American citizens or residents have control over them – whether it is because they have signature authority on the account or because they can exercise control over them (i.e. owned by a wife or an organization where they have an important stake). The form is sent to the Department of the Treasury directly, and not with your US tax returns (Although commonly mis-interpreted as a form that goes along with and makes part of your yearly tax returns).

It is an informational return only, meaning it will have no information on the filer’s tax liability – although a common factor for taxpayers with IRS Problems.

The definition includes a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts. Of course ‘other types’ is not the type of definition you are looking for, but it is as specific as the IRS gets. People may wonder if their Australian Super Annuation fund is one to be reported on the TDF 90 221 (A bigger question would be related to 3520-A though), or if their Colombian Pension in a “Fondo de Pensiones” needs to be reported, and it is unlikely they will find guidance specific to their situation. The best advice that can be given is for those accounts to be reported if they represent liquid assets under your control – Remember this is just an informational return, so you won’t have to pay any taxes related to these accounts (Of course, any interest or dividends they generate indeed need to be reported on Schedule B).

Accounts that need to be reported are as described above, if their balance was U$10,000 or more at any point during the year. This means the account could have been at a $1 balance for 364 days, and on just one of the days (Say March 1st for sake of an example) you received a wire transfer for $10,000 on behalf of someone and immediately there after sent it out – and this account needs to be reported.

Why?

Also an answer you will not find specifically – but the answer is obvious. The IRS want’s to know where to go look for information to determine if you are under reporting your income. The department of the treasury also can use this information for money laundering investigations.

The form must be filed by June 30th of each year – no extensions apply (Even if you filed an extension for your personal returns you must file this form on time; one day late and you are subject to an automatic penalty of $10,000).

Penalties.

The penalties for not filing an ‘FBAR’ are harsh. They range from an automatic penalty of $10,000, which you can expect to be generated by a computer when your late TDF 90 221 is received, to 50% of the balance in the account (Calculated yearly) and criminal charges (Potential Jail time) in the event the IRS Criminal Investigator assigned to your case can prove that you willfully withheld this information from the government.

This form has been in the news extensively lately due to the increased efforts by the IRS to bring taxpayers into compliance. The most talked about aspect of their efforts is the voluntary disclosure program (Offshore Voluntary Disclosure Initiative); unless you willfully withheld this information from the IRS and intentionally avoided the payment of taxes related to the interest or other financial gains from these accounts, DO NOT GO INTO THE VOLUNTARY DISCLOSURE PROGRAM. The IRS has made it absolutely clear that this program was not designed for people with a compliance issue (See Question 17 here:http://www.irs.gov/businesses/international/article/0,,id=235699,00.html ).

If there is a question of willfulness in your situation, note that you are best served by an experienced attorney – such as the ones Tax Planner CPA works with – contact us so we can put you in the right direction. We offer free of charge initial consultations – call us at 617.639.5550 or through the web at: https://www.taxplannercpa.com/clientarea/public/index.php?path_info=quick_quote&client_type=IRS

Related articles you may find interesting:
FBAR Penalties – if you honestly didn’t know about this requirement

Offshore activity related penalties

and
2011 Offshore Voluntary Disclosure Initiative

The IRS announced a new amnesty program for holders of undisclosed foreign bank accounts. The deadline for disclosure is Aug. 31, 2011.
The new Amnesty program is called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) – the program is substantially different from 2009 Amnesty program. The biggest change is that the overall penalty structure for 2011 is higher than the 2009 program, The IRS has stated that this is specifically to not reward individuals for waiting. meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting.
Most importantly though the amnesty will allow individuals who take advantage of it to avoid criminal prosecution.
For the new amnesty there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period.
The highest penalty is a 25 percent of account value penalty, but taxpayers in limited situations can qualify for a 5 percent penalty. For individuals with offshore accounts or assets that did not exceed $75,000 the IRS has created a penalty category of 12.5 percent.
Since Congress enacted the Foreign Account Tax Compliance Act (FATCA) last March, the number of banks and other financial institutions that will start reporting US accounts holders will increase dramatically. This act is sure to increase the number of accounts that are reported to the IRS because banks and financial institutions that do not comply will be subject to a 30 percent withholding on payments from US financial institutions.
While 25 percent of the account value seems high it is important to remember that without the penalty individuals could be subject to penalties that are $10,000 and as high as 50 percent of the account value.
It is important to realize that the FATCA applies to numerous types of accounts from pensions to trust.
In order to qualify for the FBAR Penalties amnesty, tax payers must have filed all back taxes and pay the taxes due plus any interest.

NOTE HOWEVER that the voluntary disclosure program is designed to bring people that were intentionally avoiding their US tax obligations back into compliance. The voluntary disclosure program is not meant for individuals who did not file their FBARs but otherwise reported their taxable income. The IRS has clearly indicated that this in the past, See Questions 17 and 18 in the FAQ for the 2009 voluntary disclosure program:

http://www.irs.gov/businesses/international/article/0,,id=235699,00.html

If you have any questions about the new amnesty or the FBAR reporting requirements please contact us – If there is a question of willfulness in your situation, note that you are best served by an experienced attorney – such as the ones Tax Planner CPA works with – contact us so we can put you in the right direction. We offer free of charge initial consultations – call us at 617.639.5550 or through the web at: https://www.taxplannercpa.com/clientarea/public/index.php?path_info=quick_quote&client_type=IRS

Many of our clients with  unfiled tax returns suddenly become aware of the Foreign bank account reporting requirements ( Form TDF 90 221), as well as reports pertaining to controlled foreign corporations ( Form 5471 ). Read the rest of this entry »

Structuring your offshore activities through legal entities can definitely bring advantages when it comes to tax planning (See schedule C and the foreign earned income exclusion for an example), but if not structured properly it can bring heavy penalties.

The two most important that come to mind have to do with the requirements that arise when a US taxpayer opens a legal entity in a foreign country, as well as a bank account. Read the rest of this entry »