Glenn Bailey, CPA

Foreign bank account reporting forms, “FBAR” for short, are due June 30th. Unlike your typical tax return, these must be delivered to the U.S. Treasury office by the due date, rather than just postmarked.  Enforcement of the rules related to foreign account disclosure has increased dramatically in the last couple years.  News articles abound with stories of civil and criminal prosecutions and penalties for failing to report the income and/or existence of covered foreign accounts. Standard late or non-filing penalties can range from 10-100k per occurrence and the statute of limitations doesn’t begin to run until the forms are filed. There are more severe civil and criminal penalties that may be applied.

There are a variety of rules involved in the filing requirements for a FBAR. Information is reported on Form 90-22.1 to the U.S. Treasury office in Detroit, MI. This is different than income tax returns, and this form should not be sent with your income tax form. Electronic filing is not currently available for this form.

You must file an FBAR if you are a United States person that has a financial interest in or signature authority over a foreign financial account if the aggregate value of the foreign financial accounts exceed $10,000 at any time during the calendar year.

To fully understand this we need to define some of these terms.

A person means an individual and legal entities including, but not limited to, a limited liability company, corporation, partnership, trust, and estate. A financial account includes, but is not limited to, a bank, securities, securities derivatives, or other account maintained with a financial institution.  A financial account also includes a commodity futures, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions). This does not include a hedge fund or private equity funds that are not readily tradable on an established market.

A foreign financial account is a financial account located outside of the United States. The geographical location of the account, not the nationality of the financial entity institution in which the account is found determines whether it is in an account in a foreign country. Report any financial account (except a military banking facility) that is located in a foreign country, even if it is held at an affiliate of a United States bank or other financial institution. Do not report any account maintained with a branch, agency, or other office of a foreign bank of other institution that is located in the United States.

A financial interest in a bank, securities, or other financial account in a foreign country means an account for which a person is the owner of record or has legal title and the owner of record or holder of legal title is a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person. This includes accounts owned by trusts, partnerships or corporations in which a person has a more than 50% direct or indirect interest.

A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature (or his or her signature and that of one or more other persons) to the bank or other person with whom the account is maintained.

There is an additional rule that applies to people who have signature authority but no financial interest: Notice 2011-1 provides an extension (but not an exception) for filing to June 30, 2012 for returns for 2010 and prior years for filers who have only signature authority but no financial interest in an account. This group may not have filed in the past but is now required to file for the current and all prior years to which it applies. These are usually corporate officers or executives who have check writing authority over their employer’s accounts.  The rules here are complex and there are some exceptions to filing.  If you think you might fit in this category please contact us or your tax advisor for more information before June 30th.