In a recent bulletin, the IRS reminded U.S. citizens and dual citizens of the United States and foreign countries who live abroad about U.S. filing requirements, including Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR).
Last year IRS and Tax professional promoted the importance of FBAR requirement. Nonetheless, many dual-citizen taxpayers may still be unaware of this requirement. So, here is another quick overview of FBAR.
Generally, FBAR must be filed by U.S. taxpayer having a financial interest in or signature authority or other authority over any financial account in a foreign country if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. The filing date for FBAR is June 30 and reported on TD F 90-22.1. The form is filed with the Treasury Department and is not filed as part of the tax return of a taxpayer. Your tax professional can help you file FBAR or you can file yourself by filling out the form TDF 90-22.1.
It is estimated by the Association of Americans Resident Overseas that some 6.32 million Americans live abroad. However, according to the Treasury Inspector General for Tax Administration, only a little more than 534,000 FBARs were filed in 2009. To close this gap IRS introduced an offshore voluntary disclosure initiative that allowed taxpayers to settle the FBAR requirement for all previous years.
Do I have to pay tax if I file FBAR?
No – FBAR discloses the foreign interest or account to the IRS and does not impose a tax. However, failure to file it can incur penalties and get you in trouble with the IRS. In fact, A willful failure to file can be subject to civil penalty (up to $100,000 or 50% of the balance of the foreign account, whichever is greater) and criminal penalties. Non-willful failure to file may be penalized by up to $10,000 per violation unless the failure was due to reasonable cause.
In the fact sheet issued by the IRS gave many examples of factors that could point to the reasonable cause of non-willful failure to file an FBAR.
- Reliance upon the advice of a professional tax adviser who was informed of the existence of a foreign financial account;
- A lack of any intentional effort to conceal income or assets related to an unreported foreign account that was established for a legitimate purpose; and
- A lack of any material tax deficiency related to an unreported foreign account.
Factors identified as potentially weighing against a finding of reasonable cause, on the other hand, were:
- Failure by the taxpayer to disclose a foreign financial account to his or her tax return preparer;
- Background and education of the taxpayer indicating that he or she should have known of the FBAR reporting requirements; and
- A tax deficiency related to the unreported foreign account.
Statue of limitation to file the delinquent FBARs is six-year. So even if you were not aware of FBAR requirement, you must file the FBAR for the last six years and attach a statement explaining why they are late.