Do you have a foreign financial account? If you are a U.S. person who owns or has authority over a foreign financial account (e.g., bank account, mutual fund, or brokerage account), you may be required to file a Report of Foreign Bank and Financial Accounts (FBAR). The term "U.S. person" includes a U.S. citizen or resident, domestic partnership, domestic corporation, or domestic estate or trust.
In addition, you may have an FBAR obligation as an owner in an entity or beneficiary in a trust with a foreign financial account if any of the following are true:
- You own 50 percent or more of a partnership's profits interest.
- You own 50 percent or more of the corporate shares.
- You could receive a distribution of 50 percent or more of the beneficial interest in a trust.
What is the account value that requires the filing of an FBAR? When the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year, an FBAR is due.
What is the FBAR requirement? A U.S. person subject to the FBAR requirement must file Form TD F 90-22.1. The form requires the disclosure of information about the account(s), including the maximum values, type of account, name of the financial institution, account number and location.
My account did not earn taxable income this year; am I still subject to the FBAR requirement? Yes. The reporting obligation exists regardless of whether the account produces taxable income.
When is the FBAR due? The FBAR is due June 30 of the following calendar year. For example, the 2008 FBAR was due on June 30, 2009. The Treasury will soon offer an extended deadline of June 30, 2010, for 2008 FBARs for persons who have signatory authority over, but no interest in, a foreign financial account and persons with an interest in or signatory authority over a foreign commingled fund (e.g., a foreign mutual fund or foreign hedge fund).
I received an extension to file my 1040; does this extension apply to the FBAR? No. The FBAR is filed independent of the federal income tax return (Form 1040).
I missed the deadline, now what? The solution depends on whether you are tax compliant (i.e., reported all income). If you are tax compliant and only recently learned of your FBAR obligation, the IRS will allow you to file the FBAR, a statement explaining why the FBAR is late, and supporting tax return by September 23, 2009. Taxpayers should also file all delinquent FBARs as far back as 2003 with the supporting returns and a statement as to why the FBAR is late, in order to avoid penalties on earlier years.
Those who are not tax compliant should consider participating in the IRS Voluntary Disclosure Program. The benefit to participation is a reduction in penalties as compared to the possible civil and criminal penalties the IRS has the right to enforce for the failure to file the FBAR and the failure to report income. The penalties that the IRS can enforce potentially could exceed the entire value of the account.
When does the Voluntary Disclosure Program end? Taxpayers have until September 23, 2009, to contact the IRS to participate in the program. As such, taxpayers should seek advice well ahead of that deadline.
I am not a U.S. citizen or permanent resident; do I have an FBAR obligation? You may. Any person who meets the substantial presence test may be a resident for FBAR purposes. For 2009, the definition of who has the obligation to file may be expanded. As such, any person who does business or spends time in the U.S. should seek advice regarding his or her possible 2009 FBAR obligation (due June 30, 2010).
Are there exemptions to the FBAR requirement? Yes, the following may be exempt:
- An officer or employee with signatory authority over and no interest in a foreign financial account at a corporation with equities listed on a national securities exchange or with more than 500 shareholders and assets exceeding $10 million does not have the obligation to file if the employee (or officer) has been advised in writing that the corporation filed an FBAR.
- An officer or employee with no interest in a foreign financial account employed by a bank currently examined by federal bank supervisory agencies may be exempt from the filing obligation.
- A person with an account in a U.S. military banking facility may be exempt from filing the FBAR.