Taxpayers with a financial interest in, or signature authority over, a foreign account with an aggregated value exceeded $10,000 at any point in 2015 are required to file a Report of Foreign Bank Accounts electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) (www.fincen.gov) on or before June 30, 2016.
In recent years, Congress has passed laws that impose stricter reporting requirements for U.S. citizens, resident aliens, and certain nonresident aliens who have an ownership interest in foreign financial assets and foreign bank accounts. These laws and reporting requirements are complex and fall into three main categories:
- Under the Bank Secrecy Act, certain taxpayers (U.S. citizens and resident aliens who file Form 1040 to report worldwide income and have an interest in a foreign bank account) must complete Part III of IRS Form 1040 Schedule B. This form asks about the existence of foreign accounts, such as bank and securities accounts, and requires the taxpayer to indicate the country in which each account is located.
- Under the Bank Secrecy Act, certain taxpayers are required to file a FinCEN Form 114, Foreign Bank and Financial Accounts (FBAR) with FinCEN (a bureau of the Treasury Department). This form must be filed if the aggregated value of the accounts exceeded $10,000 at any time during 2015. The Form 114 is filed separately from the Form 1040 and must be filed electronically by June 30th.
- Under the Foreign Account Tax Compliance Act (FACTA) which enacted Internal Revenue Code (IRC) Section 6038D, Information with Respect to Foreign Financial Assets, certain taxpayers must report specified foreign financial assets on IRS Form 8938, Statement of Specified Foreign Financial Assets. This form must be filed with Form 1040 if the aggregate value of those assets exceeds $50,000 on the last day of the tax year, or $75,000 at any time during the tax year.
The penalties for noncompliance with the FBAR reporting requirements can be steep. While the rules for calculating the penalties are complicated, in general, non-willful civil penalties can be up to $10,000 while willful civil penalties can run up to $100,000 or 50% of the amount in the account at the time of the violation, whichever is greater. A criminal penalty can also be imposed for willful violations resulting in a fine of up to $250,000, five years imprisonment, or both.
How You Can Use This Information
As the June 30th deadline has recently passed, consider whether you have an interest in or signatory authority over a foreign bank account or foreign financial assets. Also note that foreign accounts that have been reported on IRS Form 8938 may also need to be reported on FinCEN Form 114, and this duplicative reporting requirement can be overlooked. If you have questions about your foreign accounts, reach out to your CohnReznick partner or manager to make sure they are aware of the accounts and that you have complied with the above reporting requirements.