The Bank Secrecy Act (BSA) requires U.S. persons (individuals and businesses) with foreign financial accounts to file an annual report to the Department of Treasury by filing a Financial Crimes Enforcement Network (FinCen) Form 114. Form 114 is titled the Report of Foreign Banks and Financial Accounts (FBAR). The Form 114 replaced Form TD F 90-22.1 in 2013.
A U.S. persons is broadly defined in the law as any U.S. citizen, U.S. resident, estates formed under U.S. laws, and any entities organized under the laws of the U.S.
Similarly, financial accounts are defined broadly. Financial accounts include bank accounts, brokerage accounts, mutual funds, trusts, insurance contracts with cash value and other types of accounts that exceed certain thresholds are required to file a report.
As part of US international tax policy, this law requires U.S. persons to file an FBAR if the aggregate value of the foreign financial accounts in which they have a financial interest or signature authority exceeds $10,000 at any time during the calendar year.
Original enacted to prevent money laundering, the BSA’s requirement to file the FBAR, along with the newly enacted Foreign Account Tax Compliance Act (FATCA) are now used by the Internal Revenue Service to ensure that U.S. persons report their income from their worldwide assets.
There are exceptions to the FBAR filing requirement. For example, a spouse does not need to file an FBAR if the filing spouse reports on their FBAR all of the accounts for which the non-filing spouse has a reporting obligation. In addition, owners and beneficiaries of IRA’s are not required to report foreign accounts held by the IRA. There are other exceptions but they are rather narrow and scope and most foreign accounts will be required to be reported on the FBAR.
The FBAR report that must be filed on or before June 30 of the year following the end of the prior calendar year and reports the U.S. person’s interest in the foreign accounts during the prior calendar year.
How Flott and Co. PC Helps You
A Nonwillful failure to file a complete and correct FBAR may subject a U.S. person to a civil penalty not to exceed $10,000 per violation. However, each account not reported is a separate violation so this penalty can escalate quickly. The penalties for willful violations is much harsher. A willful violation incurs a penalty of the greater of $100,000 or 50 percent of the balance in the account during the year for which the account should have been reported. Thus, it is important to understand and comply with the filing and reporting requirements.
Our company assists in preparing and filing Form 114, providing you with all the details, and helping you respond to disputes as we represent businesses and individuals in their quest to manage their financial matters with the best tools available.
Please contact us to learn more.