The Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) published final regulations for reporting bank accounts, securities accounts and other financial accounts located in a foreign country on FinCEN Report 114 (the successor to the previously-used TD F 90-22.1, Report of Foreign Bank and Financial Accounts (the "FBAR")), but many taxpayers remain confused about the requirements, including the June 30, 2015, filing deadline.
If you have a financial interest in, or signature authority over, a foreign financial account (the "foreign accounts"), including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account, the Bank Secrecy Act may require you to report the foreign account to the Department of Treasury by filing the FinCEN Report 114 by June 30, 2015, or sooner as discussed below. Unlike income tax filings:
- FinCEN Report 114 must be RECEIVED and not simply mailed by the due date;
- The FinCEN Report 114 deadline is NOT EXTENDED to the next business day when the due date falls on a holiday or weekend; and
- An extension to file FinCEN Report 114 after the June 30, 2015 deadline is not available.
The current year filing deadline for FinCEN Report 114 is Tuesday, June 30, 2015, without regard to properly extended 2014 tax returns. As a result of these "quirks" in the rules, the deadline is essentially accelerated and filers should plan ahead to ensure timely receipt by the Department of Treasury on or before June 30, 2015.
The Department of Treasury no longer accepts paper filings and all FinCEN Report 114 must be electronically filed, through the BSA E-Filing System, or through an approved third-party tax software provider by Tuesday, June 30, 2015. Prior to the filing, a User Application Form must be submitted to BSA in order to establish an account. Taxpayers should establish their account well in advance of the June 30 deadline to avoid any last-minute issues that may arise during the registration process.
The Purpose of This Form
The FinCEN Report 114 form is a tool used by the United States government to identify persons who may be utilizing foreign financial accounts to circumvent United States tax laws. Revenue agents or investigators use the FinCEN Report 114 to help identify or trace funds used for illicit purposes, including counter-terrorism or to identify unreported income maintained and/or generated abroad. While U.S. citizens are taxed on worldwide income, many foreign financial institutions do not adhere to the same reporting requirements as domestic financial institutions (i.e., Form 1099). The IRS has become very aggressive in identifying non-compliant taxpayers, whom, upon examination, are subject to steep penalties. The IRS has also aggressively pursued banks to force disclosure of U.S. taxpayers maintaining offshore accounts, often levying huge fines to prompt disclosure. Therefore, it is critical for applicable taxpayers to comply.
Who Must File
Any U.S. person (with few exceptions) with a financial interest in, or signature authority or other authority over, any foreign financial account(s) in a foreign country and the aggregated value of these account(s) exceeds $10,000 at any time during the calendar year must file the FinCEN Report 114. Foreign financial accounts include, but are not limited to, a checking/savings bank account, brokerage account, mutual fund, trust, or other type of foreign financial account. A U.S. person includes a U.S. citizen, a foreign national who is a U.S. tax resident and a U.S. entity (e.g., a corporation, a partnership, a limited liability company ("LLC") or a trust that is created, organized or formed under the laws of the U.S., any state, the District of Columbia, the territories, the insular possessions of the U.S. or the Indian Tribes).
What Needs to Be Reported
If a filing requirement exists, personal information, such as name, address and Social Security number, along with the following, must be reported:
- Maximum value of the account during the calendar year;
- Type of account (i.e., bank, securities, foreign mutual funds, foreign-issued life insurance/annuity contract with cash value, etc.);
- Name of financial institution in which account is held;
- Account number; and
- Mailing address of financial institution.
The Department of Treasury defines maximum account value as the largest amount of currency and/or monetary instruments that appear on any quarterly or more frequently issued account statement during the tax year.
Failure to File
While the FinCEN Report 114 is an information return that imposes no tax, significant civil and criminal penalties may be asserted for failure to file. Civil penalties range from $500 to $100,000 (or 50 percent of the highest aggregate balance in the account(s) at the time of the violation, whichever is greater), while criminal penalties range from $10,000 to $500,000, including incarceration of up to 10 years. Under recently released IRS guidance, examiners have flexibility in determining penalty amounts based on facts and circumstances of each violation, and whether violations are willful or non-willful. Penalties can be higher or lower than those mentioned herein, but under the new guidance, cannot exceed 100 percent of the highest aggregate balance of all unreported foreign financial accounts during the years under examination.
Taxpayers with foreign accounts may wish to consult with a qualified tax professional to ensure compliance with all necessary tax filings related to their foreign account(s) and to avoid the onerous penalty assessments which may result from a failure to report.
For Further Information
If you would like more information about this topic or your own unique situation, please contact Rodney N. Anello, EA, or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page located here.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.