by: Anthony Parent 2013-05-20
Form TD F 90-22.1 'Report of Foreign Bank and Financial Accounts' (aka 'The FBAR') is a reporting form with complicated instructions. Making the problem worse is that the penalties for failing to follow the FBAR filing requirements are severe. This article will discuss the basics, and we'll try to make complicated info easier to understand: the who, what, where, and when of FBAR Filing Requirements.
People such as: US citizens, US resident aliens and any visa holders (H1-B, etc., or expatriates abroad.) A “resident” of the United States is a permanent resident. “Permanent resident” is not defined in the FBAR instructions, regulations, or statute. The definition of “resident alien” found in IRC § 7701(b) is not applicable for FBAR purposes. The plain meaning of the term "resident” (in this context, someone who is living in the U.S. and not planning to permanently leave the U.S.) should be used for FBAR examination purposes. Although IRC § 7701(b) is not applicable, an individual can establish that he is not a resident for FBAR purposes if he can show that none of the following three criteria apply:
If none of the three criteria listed above apply, then the person is not a resident for FBAR purposes and does not have FBAR filing requirements. Entities such as: a domestic partnership, a domestic corporation, any estate (other than a foreign estate), and any trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust, and (ii) one or more United States persons have the authority to control all substantial decisions of the trust. A legal guardian is responsible for FBAR filing requirements for minors with interests in foreign accounts.
There are FBAR filing requirements when a US person or entity has a financial interest or signatory authority in financial accounts that total over $10,000* at any point in the year. At least one court (McBride) has interpreted “financial interest” and “signatory authority” very broadly. We tend to tell our clients, if in doubt, report.
*This $10,000 is the total amount of all accounts. Let's say you have an account in Hong Kong that has $5,000 in it, and you have another account in India that has $6,000 in it. Both accounts would have to be reported because the total value of the accounts when added together is over $10,000.
The FBAR form is required to be filed when your tax return is due. A 6 month extension is applied if you do not file your FBAR on time. You do not need to request this extension, it is automatic and the due date will be October 15th.
It used to be that you filed paper FBARs, but this is no longer the case. Now FBARs are all filed online. The page you want to go to is: http://bsaefiling.fincen.treas.gov/NoRegFilePDFIndividualFBAR.html.
Once you submit your FBAR, you will get a BSA E-filing confirmation number. Hang on to this number as proof of filing and you will need it if you ever amend any mistakes on your FBAR form.
If there is unreported income, there is a likelihood that entry into one of the Offshore Initiatives is required. For various reasons stay away from the misnamed “quiet” or “soft” disclosure schemes. If you need assistance understanding which program would be best for you, contact us for a free consultation.