Thursday, February 7, 2013

FBAR: Reporting Foreign Accounts To IRS - Part 1

Quick Summary:

You are required to file form FBAR, if you are (1) Resident of US (how to find out) AND (2) You have one ore more foreign bank accounts (outside USA) AND (3) the combined total of all foreign accounts exceeded $10,000 at ANY point of time (even for one day). There are exceptions to this rule (if you are in military, etc).

If the total in all your foreign accounts never exceeded $10,000 anytime last year, then you are not required to file FBAR. As ALWAYS, talk to your CPA; since tax rules are complex and always changing. Some people may also have to submit form 8938 (see difference).

Note: FBAR form is to REPORT taxes to IRS. To actually PAY taxes to IRS, you will use the usual forms (1040, etc). The amount can be reported in the interest section (1099 INT). Again check with CPA. You can submit FBAR form online.

FBAR Overview:

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).

The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

On Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

If you are confused with all this, we have added lots of questions and answers in Part 2 of this article.


Who Must File an FBAR

United States persons are required to file an FBAR if:
  1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:
  1. Certain foreign financial accounts jointly owned by spouses;
  2. United States persons included in a consolidated FBAR;
  3. Correspondent/nostro accounts;
  4. Foreign financial accounts owned by a governmental entity;
  5. Foreign financial accounts owned by an international financial institution;
  6. IRA owners and beneficiaries;
  7. Participants in and beneficiaries of tax-qualified retirement plans;
  8. Certain individuals with signature authority over but no financial interest in a foreign financial account;
  9. Trust beneficiaries; and
  10. Foreign financial accounts maintained on a United States military banking facility.
Look to the FBAR instructions to determine eligibility for an exception and to review exception requirements.

Reporting and Filing Information
A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder's reporting obligation.

The FBAR is not filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR is an annual report and must be received by the Department of the Treasury in Detroit, MI, at one of the two addresses below, on or before June 30th of the year following the calendar year being reported.

File by mailing the FBAR to:
United States Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621

If an express delivery service is required for a timely filed FBAR, address the parcel to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226

Delivery messenger service contact telephone number: (313) 234-1062

Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

Electronic Filing for FBAR Forms
On July 18, 2011, FinCEN announced that it has developed an electronic filing system that will accept the FBAR form. E-filing is a quick and secure way for individuals to file FBARs. Filers will receive an acknowledgement of each submission. For more information about FBAR e-filing, read the FinCEN news release.

New Reporting Requirements by U.S. Taxpayers Holding Foreign Financial Assets (Form 8938)
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. The new Form 8938 filing requirement does not replace or otherwise affect a taxpayers requirement to file FBAR. A chart providing a comparison of Form 8938 and FBAR requirements, and other information to help taxpayers determine if they are required to file Form 8938, may be accessed from the IRS Foreign Account Tax Compliance Act Web page.

FBAR Assistance
Help in completing Form TD F 90-22.1 (PDF) is available Monday - Friday, 8 a.m. to 4:30 p.m. Eastern time, at 866-270-0733 (toll-free inside the U.S.) or 313-234-6146 (not toll-free, for callers outside the U.S.). The form is available online at IRS.gov and Financial Crimes Enforcement Network Web site or by telephone at 800-829-3676. Questions regarding the FBAR can be sent to FBARquestions@irs.gov.



Continue to Part 2 (FAQ): http://topimmigrationnews.blogspot.com/2013/02/fbar-reporting-foreign-accounts-to-irs_7.html

3 comments:

  1. What should you do when someone missed the deadline to file 2013 FBAR?

    ReplyDelete
  2. If you haven't, and you have foreign bank accounts open, a thorough understanding of this topic is critical to avoid potential fines and penalties by regulatory authorities.guarantor loans

    ReplyDelete

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