By: Swathi Gandham

Certain US persons who hold foreign financial accounts must file the Report of Foreign Bank and Financial Accounts (FBAR) as part of their United States taxes each year. Penalties for failing to file FBAR correctly can be steep. It is critical to work with an experienced tax professional to understand whether you should file FBAR – and to complete it accurately.

an overview of fbar

The Internal Revenue Service (IRS) collects information from US people who have financial interests in or signature or other authority over financial accounts outside the United States.

A US person (including citizens, residents, corporations, partnerships, LLCs, trusts, and estates) must file an FBAR report if:

• They have signature authority over or financial interest in at least one financial account located outside the US, and
• The aggregate value of those foreign accounts is greater than $10,000 at any time during the reported calendar year.

If you meet the above criteria, you may not have to file FBAR. To avoid filing FBAR, you must meet the following conditions:

• All the impacted financial accounts are reported on a consolidated basis, and
• You jointly owned all financial accounts with your spouse and you authorize your spouse to file FBAR on your behalf.

when to file 

FBAR is an annual report due on April 15 of the following calendar year. There is also an automatic extension to October 15 if you fail to file meet the FBAR due date. You do not need to request this extension.

how to file

FBAR must be filed electronically through Financial Crimes Enforcement Network’s (FinCEN) BSA (Bank Secrecy Act) e-filing system directly, or you can approach your Chugh CPAs, LLP professional for assistance. You don’t need to file FBAR with your annual federal tax return, but it may be easier.

keeping records

For each account that you report on FBAR, you must keep the following information for at least five years from your FBAR’s due date:

• Name on the account
• Account number
• Name and address of the foreign bank
• Type of account, and 
• Maximum value during the year

penalties 

You may be subject to civil monetary penalties and/or criminal penalties if you don’t file FBAR or correctly maintain records. Penalties depend on whether the violations were willful or non-willful. These penalties can include:

• Fines of $10,000 to $250,000.
• Five years’ imprisonment.
• A combination of fines and jail time.

Assessment of penalties depends on facts and circumstances.

Filing delinquent fbars

What penalties will you face if you do not file an FBAR correctly? It depends on whether you correctly reported FBAR income on your federal income tax returns.

If you reported the income on your tax returns, but did not file an fbar:

The IRS will not impose a penalty for failing to file delinquent FBARs if you:

• Reported the income on your US tax returns.
• Paid all tax on the income from the foreign financial accounts reported on the delinquent FBARs, and
• Have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years during which the delinquent FBARs were submitted.

if you did not report the income on your tax returns:

Delinquent FBARs can be submitted using streamlined filing compliance procedures when certain conditions are met. Under these procedures, taxpayers are required to file three years of amended tax returns and six years of delinquent FBARs. No miscellaneous penalty is applied to eligible nonresident taxpayers, while resident taxpayers pay a 5% miscellaneous penalty.

conclusion

At Chugh CPAs, LLP, we prepare accurate FBAR reports for taxpayers with different categories of financials assets outside the United States.

The right accountant can add significant value to your tax filing requirements. Our Chugh CPAs, LLP professionals are personable, thorough, and entrepreneurial. Contact us today to schedule a consultation.