Filing US tax returns is a well-known responsibility of American ex-pats, but the Foreign Bank Account Report (FBAR) is often forgotten. This can be costly, as failing to file the FBAR can draw the attention of the IRS, and lead to some harsh penalties.
A United States person that has a financial interest in, or signature authority over, foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. This means that where you are a signatory to a non-US bank account in the name of your employer’s overseas subsidiary, you are caught by the regulations.
The IRS will impose penalties if they are alerted to a failure to report – and they are ever more likely to find out thanks to the FATCA legislation of 2010.
The penalties for not filing can be severe and can quickly add up if you are years behind in your reporting. If it is determined that you purposely avoided filing, the fine can be $100,000 or 50% of the balance of the account at the time of the violation – whichever is greater. However, even if you didn’t know about your reporting obligation, the fine can be $10,000 per violation.
Amnesty programs exist to assist US citizens who fail to file due to a lack of knowledge about their obligations, one of which is the Streamlined Filing Procedures. This will allow you to catch up on your filings with no late filing or FBAR penalties. However, expats are only eligible for this Program if they come forward before the IRS are notified.
They key question for most is do they need to come forward? The obligations to file an FBAR are not always clear. Whilst it is relatively straightforward to be aware of your personal foreign bank account balances, it is important to remember that the account doesn’t have to be your own or in your name.
Signature authority means the authority of an individual to control the disposition of money, funds, or other assets held in a financial account by direct communication to the institution with which the financial account is maintained. Other cases for filing an FBAR include:
- Foreign stock or securities held in a financial account at a foreign financial institution (the account itself must be reported, but the contents of the account do not need to be reported separately)
- Financial account held at a foreign branch of a US bank
- Foreign mutual funds
- Foreign-issued life insurance or annuity contract with a cash value
Whilst those filing FBAR aren’t taxed on the balance of the accounts – it is a reporting requirement so that the IRS knows what money lies overseas.
It remains vital to be aware of your own obligations in order to avoid incurring the potential penalties.
If you are unsure about any obligations you may have or would like advice regarding filing an FBAR, Briars are here to assist. As a firm with over 28 years experience across international compliance we are best placed to advise on what does and does not give rise to signature authority and, more importantly, to provide the required solutions. To find out more please contact us at firstname.lastname@example.org