Client:
Report of Foreign Bank and Financial Accounts (FBAR)
Many U.S. taxpayers are not aware that their ownership of bank accounts or certain other financial accounts in a foreign country subjects them to strict IRS reporting requirements. Generally, U.S. citizens, residents (Green Card holders) and also other individuals and entities defined under the U.S. tax code as “United State Persons” should report to the IRS on a yearly basis their financial interest in, or signature authority over, a financial account that is held with a financial institution such as a bank located in a foreign country if, for any tax year, the total value of all foreign accounts exceeded $10,000.
“Foreign financial accounts” are defined as bank accounts, securities or brokerage accounts, mutual funds, debit and prepaid debit cards, and some types of pension accounts and retirement plans. The reporting requirements also apply if the U.S. taxpayer has an interest in certain types of partnerships. Fulfilling the IRS reporting requirements is accomplished by filing Form TD F 90- 22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”).
Recently, the IRS has intensified its FBAR enforcement efforts which has resulted in a record number of civil and criminal convictions for failure to comply with the IRS FBAR rules and regulations. Civil and criminal penalties for such violations can be severe.
Willful violation of FBAR rules can subject the offender to the greater of $100,000 or 50% of the total balance of the foreign account per violation. Inadvertent or negligent violations may result in a $10,000 penalty for each violation. Criminal penalties may subject the offender to five years in jail and a fine of up to $250,000. Violating the IRS FBAR rules may also result in a prison term of up to ten years and criminal penalties of up to $500,000.
In order to provide an incentive to delinquent taxpayers who have advertently or negligently failed to comply with the FBAR rules, the IRS has announced voluntary disclosure programs. The most recent such program which went into effect in 2012 is by no means an “amnesty” program because it involves paying hefty penalties in order to come into compliance. However, certain criminal and civil penalties are waived.
What Taxpayers Need to Know About the FATCA Requirements
In addition to meeting the requirements of FBAR, certain U.S. taxpayers who have foreign bank accounts or hold other financial assets offshore, should also comply with the requirements of the “Foreign Account Tax Compliance Act” (FATCA). The holders of these foreign bank accounts should report their accounts to the IRS on Form 8938, Statement of Specified Foreign Financial Assets.
The IRS would heavily penalize offshore account holders if the foreign bank accounts are not reported properly and timely to the IRS. These reporting regulations apply to both U.S. taxpayers who live in the U.S. and also to U.S. taxpayers who live abroad. FATCA requires foreign banks to report information about bank accounts held by U.S. taxpayers to the IRS. Therefore, such individuals will be asked by the foreign banks to explain whether they are ‘U.S. persons’ as defined by FATCA.
Penalties for violating FATCA requirements are steep: $10,000 failure to file penalty applies to first-time violators. If the failure to file continues after the IRS notification to the taxpayer, the penalty may be increased to $50,000. Any understatement of tax due to failure to disclose offshore financial assets may result in 40% penalty calculated based on the value of undisclosed assets.
Experienced Maryland Tax Attorney Can Assist You with FBAR and FATCA Compliance
Mehdiyoun Law Firm can assist you with navigating complicated tax issues involved with foreign accounts and assets.
To learn more about how our law firm can help you address FATCA’s strict reporting requirements, contact Kamyar Mehdiyoun, FATCA & FBAR Tax Lawyer Maryland located in Rockville.
Our law firm has successfully guided many U.S. taxpayers through the complicated FBAR and FATCA rules and has achieved favorable outcomes for them through confidential and effective representation before the IRS.
Call us today for your FREE initial consultation. 240-499-8333