Oversight Overseas…Be Careful!
Have you reported your foreign bank accounts to Uncle Sam lately?

By Loribel Jacobs

Do you have a bank account in a foreign country?  Are you the beneficiary of a foreign bank account?  Are you a partner or shareholder in an S corporation that has a foreign bank account?  If you're not sure, you should find out because Uncle Sam wants to know and if he finds out and you didn't self report it, you could face some hefty fines.  This does not mean that it is illegal to have an account outside the United States or that the government discourages it. There are many everyday situations where it makes sense, personally and for business. The point is to disclose the account on your U.S. income tax return and, in some cases when the aggregate value exceeds $10,000, on the FBAR.

Treasury Department Form TD F 90-22.1, the Report of Foreign Bank and Financial Accounts ("FBAR") is due every June 30th. Unlike the U.S. federal tax returns, the FBAR has no filing due date extension available.

The FBAR must be filed by any United States person, citizen or resident, who has a financial interest in or signature authority, or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. An FBAR must be filed whether or not the foreign account generates any income.

The definition of a "United States person" includes not only individuals, but all forms of business entities, trusts, and estates. A "financial account" includes any bank (savings, demand, checking, and deposit accounts), securities, securities derivates or other financial instrument accounts. Individual bonds, notes or stock certificates held by the filer are not a financial account, nor is an unsecured loan to a foreign trade or business that is not a financial institution. Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. Government installations abroad, are not considered as accounts in a foreign country. For this reason, these accounts do not have to be reported on an FBAR.

If you are an account holder and do not have all the information available to file the return by June 30th, you should still file as completely as you can by the due date. As soon as the information becomes available, the form can be amended. To amend a previously filed FBAR you must make sure you check the Amended box in the upper right hand corner of the first page of the form. On the Amended form, make the necessary additions or corrections, staple a copy of the originally filed FBAR, and attach a statement explaining the changes.

Like most forms, the FBAR has undergone several changes this year. The changes are mainly to the reporting rules and the severe penalties for non-compliance of such set rules. Did you know that willful failure to file this form can result in substantial civil and criminal penalties, including up to 5 years in prison or both?  Willful can be those people that want to be off the radar, so to speak.  Additionally, the records of the accounts that are required to be reported on the FBAR have a retention period of 5 years. Failure to maintain required records may also result in civil penalties, criminal penalties or both.

If you learn that you were required to file FBAR’s for earlier years, you should file the delinquent FBAR reports as soon as possible and attach a statement explaining why the reports are filed late. In many cases, no penalty will be assessed if the IRS determines that the late filings were due to reasonable cause. Make sure that you always keep copies of what you send, for your records. In most cases it is advisable to seek assistance from a CPA and/or a lawyer that has experience with voluntary delinquent disclosure.

The IRS announced a new penalty structure to encourage taxpayers with foreign accounts to come into its voluntary disclosure program. The program offers those who comply the chance to avoid criminal prosecution and civil penalties. The voluntary disclosure is open until September 23, 2009.  The IRS will look back at a six year period within which the taxpayers must pay the taxes, interest, and an accuracy or delinquency penalty for all years. These taxpayers will also be assessed a penalty equal to 20% of the amount in the foreign bank accounts in the year with the highest aggregate account value in place of all other penalties like “failure to file FBAR’s”.

On March 26, 2009 the IRS Commissioner, Douglas Shulman, said when announcing this new program that this is “a firm, but fair resolution of these cases. It will make sure that those who hid money offshore pay a significant price, but also allow them to avoid criminal prosecution if they come in voluntarily. As we continue to step up our international enforcement efforts, this is a chance for people to come clean on their own. Our guidance to the field is for the next six months only, after which we will re-evaluate our options. For taxpayers who continue to hide their heads in the sand, the situation will only become more dire. They should come forward now under our voluntary disclosure practice and get right with the government.”

As you can imagine, with the need to balance our national budget and the increased importance of national security measures, it is extremely important that you comply with these compliance measures and get the appropriate counsel to navigate the rules.

Kingery & Crouse, P.A.

About the Author
Loribel Jacobs manages the tax department at Kingery & Crouse, PA in Tampa, FL.  Prior to joining Kingery & Crouse Loribel spent over ten years in several local firms, first as a staff accountant, being quickly promoted to senior accountant in the area of taxation.  Kingery & Crouse PA is a full service public accounting firm offering audits of private and public companies, tax planning & research, employee benefit plan audits and many other accounting services.  You may contact Kingery & Crouse at (813) 874-1280 ext 229 or find us on the web at www.tampacpa.com.