If you haven’t heard by now, many U.S. citizens, residents and legal entities must report their foreign financial accounts to the U.S. Department of the Treasury – or face penalties.
Report of foreign bank and financial accounts
Who must file? Any U.S. person who holds a financial interest or signatory authority in a foreign financial account if the aggregate value of the foreign account(s) exceeds $10,000 at any time during the calendar year.
Form TDF 90-22.1, “Report of Foreign Bank and Financial Accounts” (FBAR), is used to report financial interests in, or signatory authority over, foreign financial accounts. The Treasury Department must receive it no later than June 30 immediately following the calendar year being reported.
This form is filed on its own, separate from the entity’s or individual’s tax return. There are no extensions.
U.S. person – U.S. citizens; U.S. residents (an alien residing in the United States); legal entities organized or formed under U.S. laws, including single member limited liability companies.
Financial interest – owner of record or holder of legal title (generally, 50 percent or greater ownership or beneficial interest), including an agent, attorney or person acting on behalf of the U.S. person.
Signature authority – individual with authority to control the disposition of the assets in the account by direct communication with the institution maintaining the account.
Foreign financial account – a financial account located outside the United States, for example, an account maintained with a branch of a U.S. bank physically located outside the United States is considered a foreign financial account.
Financial account – financial accounts that include, but are not limited to, securities, brokerage, savings, demand, checking, deposit, time deposit, commodity futures or option accounts, life insurance and annuity contracts with cash value, and shares in a mutual fund or similar pooled fund.
Penalties for noncompliance
If noncompliance isn’t willful, the penalty may be up to $10,000. If willful, the penalty may be up to the greater of $100,000 or 50 percent of the account balances. Criminal penalties may apply.
FBAR and the new Form 8938
Form 8938, “Statement of Specified Foreign Financial Assets,” became a new filing requirement in 2011 for individuals, in addition to the FBAR. Information to be reported on Form 8938 can overlap the FBAR, so it is worthwhile to consider both the FBAR and Form 8938 filing requirements when gathering foreign asset and income information.
Form 8938 is filed and due with the individual’s tax return.
Wendy L. Riccelli, CPA, CVA
Testone, Marshall & Discenza, LLP
Office in Syracuse, N.Y.