FBAR Lawyers - The Basics of Reporting Foreign Accounts by Golding & Golding

FBAR Lawyers – The Basics of Reporting Foreign Accounts by Golding & Golding

FBAR Lawyers

The highly-skilled International Tax Lawyers of Golding & Golding represent U.S. Citizens, Expats, Foreign Nationals, Legal Permanent Residents (“Green Card Holders”), Businesses, Trusts and Estates in over 45 different countries.

We have represented clients in FBAR filings, OVDP and FATCA Compliance with Foreign Accounts, Foreign Income and Foreign Assets in over 35 different countries!

                    

As experienced FBAR Attorneys, we guide and counsel our U.S. and Foreign Clients on the very strict FBAR filing requirements in accordance with general IRS Tax Law, the Department of Treasury and FATCA.

Filing FBARs and ensuring compliance with IRS International Tax Laws, Rules, and Regulations is extremely important for anyone, or any business that maintains foreign and overseas bank accounts.

Golding & Golding provides Foreign Account Reporting strategies for clients around the globe in order to report Foreign Bank Accounts and become FBAR compliant.

                                                      

FBAR Lawyers: If you, your family, your business or your foreign trust or PFIC have more than $10,000 overseas in foreign accounts (either directly or indirectly) and either have ownership or signatory over the account, it is important that you have an understanding of what you must do to maintain FBAR (Report of Foreign Bank and Financial Accounts) compliance. There are very strict FBAR filing guidelines and requirements in accordance with general IRS tax law, Department of Treasury (DOT) filing initiatives and FATCA (Foreign Account Tax Compliance Act).

Filing FBARs and ensuring compliance with IRS International Tax Laws, Rules, and Regulations is extremely important for anyone, or any business that maintains:

  • Foreign Bank Accounts
  • Foreign Savings Accounts
  • Foreign Investment Accounts
  • Foreign Securities Accounts
  • Foreign Mutual Funds
  • Foreign Trusts
  • Foreign Retirement Plans
  • Foreign Business and/or Corporate Accounts
  • Insurance Policies
  • Foreign Accounts held in a CFC (Controlled Foreign Corporation); or
  • Foreign Accounts held in a PFIC (Passive Foreign Investment Company)

Golding & Golding provides Foreign Account Reporting strategies for clients around the globe in order to report Foreign Bank Accounts and become FBAR compliant.

                                                      

What is an FBAR?

In accordance with international tax law compliance, taxpayers who meet the threshold requirements are required to file an FBAR.

An FBAR, is a “Report of Foreign Bank and Financial Accounts” form. It is a form that is filed online, directly with the Department of Treasury. Unlike the tax return, the form must be filed by June 30th of the tax year and there are no extensions available for filing it late. If you attempt to file it late, there can be serious repercussions, including fines and penalties – since it is considered Quiet Disclosure or Silent Disclosure in an attempt to circumvent the OVDP or Streamlined Program rules and regulations.

**UPDATE: Starting in 2017 for Tax Year 2016 – filing of your 2016 FBAR will be in accordance with the same time periods to file your tax returns, which is by April, 2017 unless you receive an extension of time to file.

FBAR filings can be overwhelming, especially if you have never filed one before. If this is the case, our experienced international FBAR Lawyers can assist you in ensuring you are compliant with IRS FBAR Law and FATCA requirements.

                                         

Who is Required to File an FBAR?

Not everyone who has foreign accounts is required to file an FBAR. Rather, it is required to be filed by all U.S. Taxpayers (whether they reside in the U.S. or overseas) with foreign accounts that have an “annual aggregate total” exceeding $10,000 at any time during the year. Thus, if a U.S. Taxpayer (including Legal Permanent Residents “aka Green Card Holders”) maintains foreign accounts, including banks accounts, financial accounts, or insurance policies that have a combined value of more than $10,000 (or has indirect ownership of the account or signature authority), then that person is required to file an FBAR statement.

                                         

What if None of My Accounts Exceed $10,000?

It does not matter.  It is important to remember that the threshold is the Annual Aggregate Total value at any given time during the year. This means if you have 10 bank accounts that have an annual aggregate total exceeding $10,000 at any given time during the year, you are STILL required to file the FBAR and list all the accounts on it, even if none of the accounts exceed $10,000. In other words, you are required to report the total value of all your foreign accounts located in any foreign country, once you exceed the $10,000 annual aggregate total threshold on any given day during the year.

There are various accounts and other assets (insurance policies) which may or may not be included in your FBAR analysis. Please contact one of our experienced FBAR Lawyers for further assistance regarding specific account disclosures.

                                         

What if I did Not File an FBAR Statement?

If a person fails to file the FBAR, there is still hope. Depending on whether the person also had unreported foreign income (income that was earned overseas and not reported on the U.S. tax return – even if it was reported in a foreign country and foreign tax was paid) the IRS and DOT will determine if a penalty will be issued; usually the taxpayer will be penalized but the amount of the penalty will vary. 

                                         

What are the Penalties for Failing to File an FBAR?

Recently, the Internal Revenue Service issued a memorandum which details how the IRS “believes” the agents should penalize individuals in accordance with their authority. Essentially, there are two sets of penalty structures and they are based on whether the taxpayer was willful or non-willful

                                         

Willful

Willful is determined by a “totality of the circumstances” analysis. Somebody is considered to have acted willful if they intentionally evaded the payment of taxes or disclosure of foreign accounts. In other words, they willfully or knowingly “knew” about the requirement to disclose and report overseas assets, accounts, and income but chose not to. In these situations, the Internal Revenue Service has the authority to penalize the taxpayer upwards of 50% of the value of the assets per audit year for failing to file the FBAR (in addition to a slew of several other non-FBAR penalties), but no more than 100% value of the account over an audit period.

Generally, audits last three years and the Internal Revenue Service has made it known that they will not penalize the individual beyond the value of the Accounts for the audit periods at issue. Thus, if you had $1 million in your form bank account and you knowingly did not report this information to the IRS and the audit you for three years and they can take all of your $1 million.

Non-Willful

When a person is non-willful, it generally means they were unaware of the requirement to file an FBAR. In this situation, the IRS takes some mercy – but nowhere near as much mercy as you can imagine certain people deserve (example: individuals who relocated from overseas and have foreign accounts that they simply did not use or earn much income on, or individuals who inherit money from.)

In these situations, the IRS has four (4) main options in terms of penalizing the taxpayer:

  1. The IRS agent can simply issue a warning letter instead of a monetary penalty to the taxpayer. This will rarely happen (although Golding and Golding has achieved this result on multiple occasions for individuals who have been audited and did not file FBAR statements and/or otherwise do not qualify for one of the IRS offshore voluntary disclosure program, but were non-willful).
  1. The IRS agent could penalize the taxpayer a total of $10,000 for all of the years that the taxpayer did not file FBAR statements. For example, if the taxpayer is audited for three years and did not file FBARs for those three years, the IRS may penalize the taxpayer $10,000 for the total amount of the audit.
  1. The IRS Agent could penalize the taxpayer $10,000 for each year that the FBAR was not filed. So using the example above, if the taxpayer is audited three years and did not file an FBAR for three years, then the IRS could penalize the taxpayer $30,000 – and usually not beyond the value of the account.
  1. The IRS agent could penalize the taxpayer $10,000 per account per year. In other words, if the taxpayer has four different bank accounts and was audited for three years – the IRS could penalize taxpayer $120,000.

One very important thing to remember is that the penalty scheme listed above is for non-willful. In other words, even though the IRS knows the taxpayer did not intentionally attempt to evade tax, the IRS has the power to still issue tens, if not hundreds of thousands of dollars in penalties in a non-willful situation

Whether a person is willful or non-willful is a complex evaluation which requires a comprehensive factual analysis by an experienced FBAR lawyer to ensure the taxpayer is informed before making any representation to the IRS.

                                         

Why is it Important to File an FBAR?

Prior to the recent changes in the law, taxpayers were able to fly below the radar and could probably  last most of their lifetime without having to file international tax forms disclosing their foreign income and overseas assets. The problem is that under the new FATCA (Foreign Account Tax Compliance Act) laws, foreign countries and the United States are entering into intergovernmental agreements (IGA) with foreign countries.

IGAs are “reciprocity agreements.” In other words, while foreign countries are going to report account information of US taxpayers (U.S. Citizens, Legal Permanent Residents, and Foreign Nationals Subject to U.S. Tax) the United States is going to do the same and report account information to the foreign countries. Thus, there is a benefit to both parties in entering these IGA Agreements.

FBAR compliance is very important for any taxpayer subject to IRS tax reporting requirements. The failure to file a timely FBAR and remain in IRS tax compliance can leave to significant fines, penalties, and other possible consequences. 

                                         

What can I do to get FBAR Compliant?

There are various safe harbor programs in place, which if a person meets the requirements then they can have their penalty reduced, if not eliminated.  The two main programs are the Offshore Voluntary Disclosure Program (OVDP) and Modified Streamlined Program. These safe-harbor programs can be eliminated by the IRS at anytime.

We have gone into great detail on our website explaining the difference between the Offshore Voluntary Disclosure Program (OVDP) and Modified Streamlined Program. Essentially, Offshore Voluntary Disclosure Program (OVDP) is a program intended for those who were willful. In other words, if you knowingly defrauded the IRS by not reporting your foreign assets and you “knew” you were supposed to report the information, then the Offshore Voluntary Disclosure Program (OVDP) is the proper program for you.

In this program, the penalty is relatively high compared to the other program, but you walk away with the satisfaction of knowing you only have to pay a financial penalty and you will probably not end up in prison doing a 20 year prison stint with real criminals.

Alternatively, if your only mistake was that you were unaware of the requirement to file FBAR statements, then you can enter the Modified Streamlined Program. Unlike OVDP, the Modified Streamlined Program does not provide you criminal protection but if you are non-willful then you do not require it. Under the streamlined program, the penalty structure is reduced significantly and the filing requirements are much more limited.

Nevertheless, it is absolutely crucial that you do not enter the streamlined program if you were willful – because if you are detected by the IRS and they find that you were clearly willful but you are just simply trying to get a penalty reduction then the IRS will see this as tax fraud and tax evasion and they will prosecute to the fullest extent of the law.

**In addition, the current reduced penalty rate will often increase with each new year, and most importantly, if you find yourself under audit, then you are disqualified from entering these programs.