Do You Need To Report Foreign Bank And Financial Accounts (FBAR)?

Many U.S. taxpayers are required to submit FBAR reporting to the Department of the Treasury, and they don’t even know it. Do you know if you need to report your Foreign Bank and Financial Accounts? Read on to learn more about FBAR reporting.

What is FBAR?

Foreign Bank and Financial Accounts, or FBAR, is a form the IRS uses to collect information on offshore financial accounts owned or managed by U.S. taxpayers. While many people believe the FBAR form is part of the annual U.S. tax returns process, it is actually not included with your tax returns, and is meant to be sent directly to the Department of the Treasury. The FBAR form must be filed by June 30th each year, and is an informational return only. That means you won’t have to pay any taxes on the accounts that you report, but the FBAR can be used to determine if you are underreporting income or using offshore accounts for illegal purposes.

Do I need to submit an FBAR report?

Any U.S. taxpayer with an offshore account with a balance of more than $10,000 at any point during the financial reporting year must submit an FBAR report. Offshore accounts include bank accounts, mutual funds, unit trusts, and brokerage accounts. If the account is not in your name but you have signature authority on the account (for instance, your husband owns the account but you can sign on it) you must submit an FBAR report.

What happens if I don’t submit an FBAR report?

The IRS takes the FBAR very seriously, and the penalties for not filing an FBAR are severe. Penalties can range from an automatic penalty of $10,000 for filing the FBAR late to fines of 50% of the balance in the account. If the IRS finds that you willfully hid information by not submitting an FBAR, you could even face criminal charges and potential jail time.

Recently the IRS has significantly increased its efforts to bring taxpayers with offshore accounts into compliance with FBAR reporting. They have been pressing other governments for information regarding foreign bank accounts, and have even launched several voluntary disclosure programs. The most recent, the Offshore Voluntary Disclosure Initiative (OVDI), offers U.S. taxpayers who did not know they weren’t in compliance to submit their overdue FBARs to the IRS, and the IRS will take their willingness to comply into account when calculating their penalties.

If you have a question of whether you need to submit an FBAR report or whether you are eligible for the OVDI program, you need to contact a tax attorney immediately. An experienced tax attorney can go through your accounts and help you weigh your options for submitting the FBAR. If you are a U.S. taxpayer with offshore accounts, call a tax attorney for more information today.

FBAR: Foreign Bank (and Financial) Account Reporting Rules Expanded With Higher Penalties

The U.S. Treasury issued expanded rules, effective March 28, 2011, requiring U.S. persons to report foreign bank and financial accounts each year. The new rules apply to every U.S. citizen or resident and every entity organized under U.S. law. They must report every foreign account over which he, she, or it has signature authority and every foreign account in which he, she, or it has a financial interest. The reports on Form TD F 90-22.1 must be received by June 30 by the IRS at an address in Detroit, MI. Penalties under the new rules can be the highest balance in the account, up to $25,000 each, and may include criminal penalties (jail time) for willful failures.

Who Must File. The reports must be filed by every U.S. person with a financial interest in or signature authority over a foreign financial account. This includes all citizens and residents of the United States. It also includes all entities formed under the laws of the United States. For this purpose, United States includes the 50 states, District of Columbia, Puerto Rico, the Virgin Islands, and other territories and possessions. The rules require reports by corporations, partnerships, limited liability companies, and other entities, no matter who owns them, if they were formed under U.S. law. In addition, U.S. persons (individuals or entities) that own more than 50% of the vote, value, interest in profits, or capital of any entity with a foreign account must also file, whether the entity is U.S. or foreign.

U.S. persons must report all foreign accounts they own, either separately or jointly. They must report if they are the owner of record, or if another person is the owner of record acting as their agent. In addition, a U.S. person must report an account owned by:

  • Any corporation in which the person owns over 50% of the vote or value,
  • Any partnership in which the person owns over 50% of the capital or profits interests,
  • Any other entity, including an LLC, in which the person owns over 50% of the vote, value, equity, assets, or profits, and
  • Any trust of which the person is either the grantor or 50% or more income beneficiary.

Example: John and Mary are unrelated. John owns 51% and Mary owns 49% of JM, a Delaware LLC. JM owns 51% of a Clocks GmgH, a German company. Clocks has an operating bank account at a bank in Frankfurt and a brokerage account with a stock broker in Zurich. John and JM must both report each account. Mary can direct the brokerage to make distributions, but can’t sign any checks. Mary must report the brokerage account.

In addition, a person who has signature authority over an account must report the account. Signature authority includes any ability to direct the institution. Example: Fred is a U.S. citizen living in Germany, and is the controller at Clocks. He can sign the Clocks checks, with one co-signer. Fred must report the Frankfurt account.

What Accounts Must Be Reported. Accounts with a foreign branch of any bank, brokerage, or other financial services company must be reported. All of the following must be reported:

  • Checking accounts
  • Savings accounts
  • Brokerage accounts
  • Mutual funds with regular net asset value determinations
  • Life insurance policies or annuities with a face value

A few exceptions apply. A bank account maintained on a U.S. military base is not considered foreign. Accounts in Puerto Rico, Virgin Islands or other possessions are not considered foreign. Beneficiaries of IRAs do not themselves report accounts maintained by the IRA.

Examples: Jesus is a resident of Puerto Rico. He does not need to report his Puerto Rico bank account, but must report his account in Haiti.

Betty lives in Idaho. She has a whole life insurance policy with Insur AG, a Swiss insurance company. She must report that policy.

Alice lives in Texas. She owns shares of a German mutual fund held for her benefit in her family attorney’s name. Alice and the attorney must both report the mutual fund.

Account Value. Reporting is required for every U.S. person who has accounts with an aggregate value in excess of $10,000 at any time during the year. The value of each account is determined by translating the face value of the account to U.S. dollars using the rate for the end of the year as published by Treasury. Where no rate is published, an alternative source may be used (but must be explained).

Example: Harry has a bank account in Elbonia denominated in Drakmas. The maximum value of the account during the year was 1,427,000 Drakmas on June 13, 2010, and nearly zero the rest of the year. Treasury did not publish rates for the Drakma, but the Elbonian Gazette listed the rate on June 13 as $1 = 150 Drakmas, and the rate on December 31 as $1 = 130 Drakma. Harry must report the account at a value of $10,977, and attach an explanation to the form about using the Gazette rate.

How To Report. Reports are filed by completing and signing IRS Form TD F 90-22.1. The form may be mailed or delivered to the IRS address in Detroit, on page 7 of the form/instructions. The report must be RECEIVED by the IRS in Detroit by June 30 following the calendar year covered by the report. The accounts must be reported ON THE FORM, not in attachments, Copies of additional pages of the form may be used.

Penalties can be severe. Intentional late filing or non-filing of the report can result in jail time. Other late filing or non-filing can result in penalties up to $25,000 per account not reported.

Summary. U.S. citizens, residents, and entities must report their non-U.S. bank and securities accounts each year by June 30. Reporting is required by a U.S. entity even if it has no activities in the U.S. Persons with signature authority over foreign accounts must report.

International tax issues can be complex, and reporting difficult. For competent planning and compliance help, call Steve Fox.

It is Advantageous to First Shop Around Banks and Financial Institutions

It is advantageous to first shop around banks and financial institutions where you can take these loans. Check the money lenders who advertise online so that you can acquaint yourself with the lowest interest and loan rates on offer. The smallest difference in interest can make a huge difference in the payments of your loan.

Once your loan has been approved you can start looking for your ideal home. It will be easier this way as you will know what the maximum amount is that the bank will loan you and it makes it easier to look at homes in this price bracket.

It is a good thing to remember when you are paying off a mortgage loan and you have any financial problems that are preventing you from paying off your loan, to speak to the bank or lender before they realise that you have a problem. It would be in their power to help you, by perhaps making the monthly payments smaller and extending the duration of the loan.
If the worse came to the worst and you had to lose your home, think of it this way. The house only belongs to you once you have paid it off completely. It is actually the property of the bank, so regard the amount that you have paid off on the loan as rent you would have paid anyway to live some where.

Your regular income would also interest them. This will give them an indication whether you could afford to purchase this house. Your current credit history will also be of interest to them. It should not be very difficult for you to get your loan approved, if the lender is satisfied with you answers to all theses questions.

You will have to earn over a certain amount per annum to qualify for a loan

Once you have everything in place you can enter the buyers market and start looking for your dream home. The estate agents will now take you more seriously when they know that you already have an approved loan.