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Report of Foreign Bank and Financial Accounts

Posted by Kamyar Mehdiyoun, Esq. | Jul 11, 2023

United States citizens, residents (Green Card holders) and certain other persons must annually report to the IRS their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year. “Foreign financial accounts” include bank accounts, securities or brokerage accounts, mutual funds, debit and prepaid debit cards, some pension accounts, retirement plans and also interests in partnerships. The reporting must be done by filing Form TD F 90- 22.1. (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”).

Failure to comply with FBAR filing requirements may result in civil and criminal penalties. The IRS has recently stepped up its efforts to enforce FBAR filing requirements and U.S. taxpayers with unreported foreign bank accounts can expect to be the likely targets of some of the most aggressive enforcement efforts by the IRS in recent memory. Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50% of the total balance of the foreign account per violation. 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

Failure to comply with FBAR filing requirements can also subject the delinquent taxpayer to severe criminal penalties. Examples of such criminal penalties are: conviction of tax evasion which entails a prison term of up to five years and a fine of up to $250,000, conviction for filing a false return resulting in a prison term of up to three years and a fine of up to $250,000. In addition, failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.

In 2012, the IRS announced the Offshore Voluntary Disclosure Program (OVDP), which has many similarities to similar initiatives in the past. The IRS's purpose is to bring as many U.S. taxpayers as possible into compliance with FBAR reporting requirements.

United States taxpayers regardless of their residence in or out of the U.S. or their tax filing status may be required to report their foreign financial assets including foreign bank accounts to the IRS. These reporting requirements were enacted as part of the Foreign Account Tax Compliance Act (FATCA) in 2010. Initially, the IRS didn't vigorously enforce the FATCA reporting requirements. However, recent years have witnessed aggressive enforcement by the IRS. Not only U.S. taxpayers with foreign bank accounts have been heavily penalized for violating FATCA, but also foreign banks have been subjected to multi-million dollar fines for such violations. FATCA's yearly reporting obligations are in addition to the FBAR requirements.  The reporting threshold for FATCA and FBAR are not identical. Also, ‘foreign assets' are defined differently under FATCA and FBAR.  Offshore account holders who fail to timely and accurately report their foreign bank accounts on Form 8938 will be forced to pay heavy fines: the penalty for not complying with FATCA reporting requirements is $10,000. The failure to file penalty will increase to $50,000 if the violation continues after the IRS notification. In addition, if the FATCA violation results in understatement of tax, a 40% penalty will be imposed on unreported offshore assets.

Navigating the complex FBAR reporting requirements and taking advantage of the Offshore Voluntary Disclosure Program (OVDP) is best achieved through following the advice of an experienced tax lawyer who has guided his clients through the maze of the FBAR rules and regulations for many years. If you have a foreign bank account and would like to learn how to comply with the IRS rules on FBAR, contact our IRS tax debt resolution law firm. If you need more information about FBAR tax issues schedule a free consultation with Kamyar Mehdiyoun, Esq. here.

About the Author

Kamyar Mehdiyoun, Esq.

Kamyar Mehdiyoun, holds a Master of Law (LL.M.) degree in taxation from Georgetown University Law Center and focuses his practice on tax law. In 2003, he received the Award for Excellence in Tax Practice and Procedure from Georgetown. He also holds a Certificate in Employee Be...

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