The Bank Secrecy Act requires taxpayers to report their foreign financial accounts like brokerage accounts, mutual funds and bank accounts to the Treasury Department. The reporting of these accounts is done by filing FBAR on FinCEN Form 114.
Individuals must file the report electronically using the Financial Crimes Enforcement Network’s, BSA E-Filing System, without registering for an account. Attorneys, registered agents or certified public accountants must first register with the BSA E-Filing System and acquire login credentials to become BSA E-Filers.
Who must file an FBAR?
If you are a “U.S. person, i.e., permanent resident, trust, estate, corporation, limited liability company, partnership or corporation, linked to at least one foreign account with an aggregate value exceeding $10,000 at any point in the financial year reported, you must file an FBAR.
A foreign financial account is an account an individual or institution has registered outside the United States. Correspondent accounts and those accounts owned by government institutions are, however, not subject to FBAR filing.
When do I file FBAR?
The deadline for filing FBAR to FinCEN coincides with the IRS filing deadline for annual tax, April 15, but if you fail to meet this annual date, there is an automatic expansion to October 15. The government extends the date further to those in regions affected by a natural disaster.
What are the penalties for not filing FBAR?
You are likely to be subjected to criminal penalties for your failure to file FBAR. The current civil penalties are as follows;
- Maximum penalty of $12 921 for non-willful violation of a Foreign Financial Agency transaction.
- Maximum penalty of $129,000 or 50% of the amount in the account, whichever is greater, for willful violation of a Foreign Financial Agency transaction.
- Maximum penalty of $1,118 for negligent violation by a business, financial and non-financial institutions.
- Maximum penalty of $86,976 for a pattern of negligent activity by either a business, financial and non-financial institution.
These penalty maximums are adjusted each year for inflation. The IRS initiated the streamlined domestic and foreign offshore procedure to bring U.S. taxpayers into compliance with their unreported foreign financial accounts, investments and income. The program benefits individuals who can attest that their failure to report their foreign financial accounts was not due to willful conduct.
With the streamlined procedure, the taxpayers can file amended or delinquent returns. The program also offers terms for resolving the taxpayers’ penalty and tax obligations.