Reports Due by the End of June

Every U.S. person that had a financial interest in, or signature or other authority over, a foreign financial account during 2013 must electronically file with the U.S. Treasury Department a Financial Crimes Enforcement Network (“FinCEN”) Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”), if the aggregate value of such foreign financial account(s) exceeded USD $10,000 at any time during 2013. This form replaces the U.S. Treasury Form TD F 90-22.1 that was required in years past. If an FBAR for 2013 is required, it must be filed electronically with the Treasury Department on or before June 30, 2014. This deadline cannot be extended.

In your determination of whether you have an FBAR filing obligation, you should consider the following definitions, which apply to both individuals and entities for FBAR purposes:

U.S. Person

A “U.S. person” means any (1) U.S. citizen or resident (including resident aliens), (2) entity (including, but not limited to, a corporation, partnership or limited liability company) created or organized in the United States, and (3) trust or estate formed under the laws of the United States. Entities and trusts that are disregarded for federal income tax purposes are not disregarded for FBAR purposes and, therefore, may be required to file an FBAR.

Financial Account

A “financial account” generally includes any savings deposit, demand deposit, checking, securities, security derivatives, debit card, prepaid credit card, and any other financial instrument account, including certain insurance or annuity policies and pension funds. An account with a mutual fund or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions is a financial account. However, an equity interest in a hedge fund, private equity fund or other private investment fund is not currently considered to be a financial account.

Foreign Financial Account

Only “foreign financial accounts” are reportable on the FBAR. A foreign financial account is a financial account that is maintained outside the United States. For this purpose, the United States includes the states, the District of Columbia, territories and possessions of the United States, and certain American Indian lands. An account maintained with a foreign branch of a U.S. financial institution is a foreign financial account for FBAR purposes. In contrast, an account maintained with a U.S. branch of a foreign financial institution is not a foreign financial account for FBAR purposes.

Financial Interest

A U.S. person has a “financial interest” in every financial account for which such U.S. person is the owner of record or holds legal title, regardless of whether the account is for such U.S. person’s benefit or for the benefit of another.

In addition, a U.S. person is required to file FBARs with respect to foreign financial accounts owned by entities if such U.S. person has, directly or indirectly, (a) in the case of a corporation, more than 50% of the voting power or the total value of the shares of such corporation; (b) in the case of a partnership, a more than 50% interest in the profits or capital of such partnership; or (c) in the case of other types of entities, more than 50% of the voting power or the total value of the equity or assets, or a more than 50% interest in the profits of, such other entities.

Similarly, if a U.S. person holds a present beneficial interest in more than 50% of the current income or assets of a trust that holds a foreign financial account, such U.S. person is required to file an FBAR with respect to the foreign financial accounts of the trust, unless the trust, trustee or agent of the trust is a U.S. person and files an FBAR disclosing the trust’s foreign financial accounts. A U.S. person with a remainder interest in a trust is not within the scope of the FBAR.

Signature or Other Authority

“Signature or other authority” is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the financial institution that maintains the foreign financial account.

 

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If an FBAR is required, the following generally describes the procedural requirements and the consequences of non-compliance:

Filing

The FBAR must be filed electronically through FinCEN’s Bank Secrecy Act E-Filing System on or before June 30, 2014. There is no longer a paper filing option. The online form and instructions may be found here.

The spouse of an individual who files an FBAR is not required to file a separate FBAR if all the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse and the filing spouse reports the jointly owned accounts on his or her FBAR. If jointly filing, both parties should complete and sign FinCEN Form 114a, Record of Authorization to Electronically File FBARs, which allows only one spouse to electronically sign a single FBAR for both parties. This form is kept for the taxpayers’ records and is not sent to FinCEN. If spouses file separately, then each spouse must report the entire value of the jointly owned accounts on his or her FBAR.

Penalties for Non-Compliance

Failure to timely and properly file an FBAR may expose a taxpayer to a civil penalty of up to USD $10,000. Willful violations of FBAR filing obligations may expose a taxpayer to an increased civil penalty of up to the greater of USD $100,000 or 50% of the aggregate value of the taxpayer’s foreign financial accounts at the time of the violation. In addition, willful violations may be subject to criminal penalties.

Offshore Voluntary Disclosure Program

A U.S. person who has failed to timely or properly file an FBAR in the past may be able to correct such failure and mitigate or eliminate any applicable penalties through special programs currently administered by the Treasury Department.

 

Topics:  FBAR, Filing Deadlines, FinCEN, Foreign Investment, Offshore Funds, OVDP, Reporting Requirements, U.S. Treasury

Published In: Finance & Banking Updates, International Trade Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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