Thursday, February 7, 2013

FBAR: Reporting Foreign Accounts To IRS - Part 3

If you missed part 1, please click here:

Q. How does an FBAR filer amend a previously filed FBAR?

A. FBAR filers can amend a previously filed FBAR by:
  • Checking the Amended box in the upper right-hand corner of the first page of the form;
  • Making the needed additions or corrections;
  • Stapling it to a copy of the original FBAR; and
  • Attaching a statement explaining the additions or corrections.

Q. What happens if an account holder is required to file an FBAR and fails to do so?

A. Failure to file an FBAR when required to do so may potentially result in civil penalties, criminal penalties or both. If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause. Keep copies of what you send for your records.

Q. Can cumulative FBAR penalties exceed the amount in a taxpayer's foreign accounts?

A. Yes, under the penalty provisions found in 31 U.S.C. 5314(a)(5), it is possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account.

Q. How long should account holders retain records of the foreign accounts?

A. Records of accounts required to be reported on an FBAR must be retained for a period of five years.  Failure to maintain required records may result in civil penalties,  criminal penalties or both.

Q. For filing FBARs for prior years, should the current FBAR form be used or should the previous version of the form be used?

A. The current FBAR form (revised in October 2008) may be used to report a financial interest in, or signature or other authority over, financial accounts that were maintained in years prior to 2008. However, since the changes to the current FBAR form reflect a change in the reporting requirements, the instructions for the prior version of the FBAR form (revised in July 2000) may be relied upon for the purpose of determining the filing requirements for properly reporting financial accounts maintained in calendar years prior to 2008.

Q. Does more than one form need to be filed for a husband and wife owning a joint account?

A. No, provided that the names and Social Security numbers of the joint owners are fully disclosed on the filed FBAR. A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner in Part III of the FBAR. The filer should write “(spouse)” on line 26 after the last name of the joint spousal owner. If the only reportable accounts of the filer's spouse are those reported as joint owners, the filer's spouse need not file a separate report. If the accounts are owned jointly by both spouses, the filer's spouse should also sign the report. It should be noted that if the filer's spouse has a financial interest in other accounts that are not jointly owned with the filer or has signature or other authority over other accounts, the filer's spouse should file a separate report for all accounts including those owned jointly with the other spouse.

Q. Are UBS account holders still eligible for the Voluntary Disclosure Practice? The income earned on my client’s foreign account has not been reported on his Form 1040, nor have FBARs been filed.

A. The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation of taking timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution. When a taxpayer truthfully, timely and completely complies with all provisions of the Voluntary Disclosure Practice, the IRS will not recommend criminal prosecution to the Department of Justice.
Although the use of special voluntary disclosures by taxpayers with unreported income from offshore accounts expired on Oct. 15, 2009, noncompliant taxpayers can still use the VDP to resolve their tax liabilities. A voluntary disclosure is made by following the procedures described in I.R.M. Tax professionals or individuals who want to initiate a voluntary disclosure should call their local CI office. Taxpayers with questions may call the IRS Voluntary Disclosure Hotline at 215-516-4777, visit or contact their nearest CI office.

Q. A person owns foreign financial accounts X, Y and Z with maximum account balances of $100, $12,000 and $3,000, respectively. Does the person have to file an FBAR and if so, which accounts must be listed on the FBAR?

A. The FBAR instructions require the filing of the FBAR form “ … if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year … ” In this scenario, the person has an FBAR filing obligation because the aggregate value of foreign financial accounts X, Y and Z is $15,100. The person must report foreign financial accounts X, Y and Z on the FBAR even though accounts X and Z have maximum account values below $10,000.

Continue to part 4:

Comments posted above will only appear in this blog post. Comments posted below will appear across all blog posts:

comments powered by Disqus