Many United States taxpayers have foreign bank and financial accounts that they are obligated to report. However, many of these foreign account owners fail to report it, which is why the FBAR, also known as FinCEN Form 114, was created.
The FBAR assists the U.S in identifying undeclared income and overseas accounts. “Every U.S citizen has an obligation towards the state. Failure to meet with those requirements can result in sever penalties.
The FBAR objective is to notify the Internal Revenue Service (IRS) of any accounts or other assets that taxpayers have outside of the United States. The IRS here assists in enforcing FBAR compliance and assessing and enforcing foreign account penalties against taxpayers who fail to comply with any FBAR rules.
Essential Facts About FBAR filing For 2022
While completing United States tax returns is a well-known need for Americans living overseas, many overlook the Foreign Bank Account Report (FBAR). Failure to file the FBAR can attract the IRS investigation and severe penalties. Here are vital points to note about FBAR filing to ensure you stay compliant and off the IRS hit list:
#1. Deadline For FBAR Filing
The annual filing deadline for the FBAR is April 15. If unable to file the form by the FBAR filing date, an automatic FBAR extension until October 15 will be granted. If you need to file the form after October 15, you must meet particular requirements to extend the deadline.
#2. Which Accounts Must Be On The FBAR?
Bank accounts and financial accounts such as securities accounts (brokerage accounts and securities derivatives), foreign pensions/retirement accounts, and investment accounts must all be on the FBAR. Furthermore, cash-value insurance policies (including whole life insurance), mutual funds or similar pooled assets, and any other accounts held by a foreign financial institution must also be on the FBAR.
Certain accounts, however, are not required to file an FBAR. Accounts managed by the United States Military financial institution, owned by an international financial institution or a government body, and held in an individual retirement account on your behalf are exempted. Also exempt are Correspondent or Nostro accounts, accounts held in a retirement plan on your behalf, as well as accounts held in a trust for which you are a beneficiary.
#3. Who Is Required To File An FBAR?
It is important to note who must file an FBAR. People who are required to file an FBAR include the following:
- An individual from the United States: According to the FBAR rules, any individual or company that fulfills the definition of a United States person is under obligation to file an FBAR. Citizens, residents, corporations, partnerships, limited liability companies, trusts, and estates are all considered United States persons for FBAR reporting purposes. Furthermore, if a non-U.S. citizen passes either the green card or significant presence tests (two criteria used to assess a taxpayer residency status), they are considered a resident.
As a result, if you have a financial interest in or any authority signature over one or more financial accounts situated outside of the United States, you are obligated to file an FBAR. Even if the account generates no taxable income during the year, it must be in the report.
Another requirement for completing an FBAR is that the total value of all of your overseas financial accounts exceeds $10,000 at any point during the calendar year. The total value refers to the overall worth of all accounts. In other words, even if no single account in the year reaches $10,000 in value and the overall amount of all your accounts is more than $10,000 at any time, you must still file this form.
- If you have signature authority over an account: the FBAR form is not just for account holders who control the account. It also applies to filers with signing authority, which means that the taxpayer does not have to own the funds in the overseas accounts to be required to file the FBAR form. Even if their designation is a signee on the overseas account, the taxpayer must file the FBAR.
- Minors are Also Allowed to File: minors are not exempt from filling out the FBAR form. As a result, if your young child has enough foreign account balances to reach the FBAR filing threshold, they must still submit the FBAR.
#4. What Happens If You Miss the FBAR Deadline?
The repercussions of missing the FBAR deadlines are severe. Failure to file the FBAR can result in hefty penalties and fines that can be expensive.
Even if the failure was due to an honest misunderstanding of the laws, civil fines for non-willful FBAR infractions could be as high as $13,481 per violation. The penalty for intentional violations of the FBAR can be up to $134,806 or 50% of the account total per violation. Along with civil penalties, criminal punishments can include fines of up to $500,000 and imprisonment for close to ten years.
How To File The FBAR
Unlike your federal tax return, FBAR filings are submitted to the United States Department of Treasury, specifically FinCen, rather than the Internal Revenue Service. The FBAR is not sent via mail. Instead, it is done electronically through the BSA E-Filing System of the Financial Crimes Enforcement Network.
It is possible to have someone else file the FBAR on your behalf. You must, however, file FinCEN Report 114a, Record of Authorization to File FBARs Electronically. This form is not part of your FBAR submission. Instead, make a copy of it and retain it to give to the IRS if necessary.
How to Meet Up With FBAR Compliance
While many taxpayers comply with their obligations voluntarily, some do not. There is a wide range of civil and criminal sanctions on non-compliant taxpayers; failure to cooperate voluntarily may result in incarceration, fines, and other penalties.
If you have willfully failed to comply with tax or tax-related duties, making a voluntary disclosure could be a way to remedy your non-compliance and avoid criminal prosecution. Voluntary disclosure is not the only option for taxpayers who are yet to file their FBARs on time. Streamlined Filing Procedures, DIIRSP, DFSP, and other IRS programs are also available.
If you are out of compliance, you must talk with an experienced attorney before making any affirmative declarations to the IRS.
Final Thought
It is your responsibility as a United States citizen to file the FBAR. The only safe approach to avoid IRS penalties and fines is to ensure compliance with the FBAR standards. It does not cuase you to pay taxes. It is legal to have accounts in any foreign country so long as you comply with the reporting rules EMAIL US FOR HELP
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