FBAR for Entities – Examples of Entity FBAR Submission Requirements
While it often becomes an unwelcome surprise for individuals who are considered U.S. Person to learn they have to file an annual FBAR statement to report their foreign accounts, it usually becomes an even bigger (and more unwelcome) surprise to learn that their entity has to file an FBAR as well.
FBAR for Entities
Common questions receive regarding FBAR filing for entities:
- Do all entities file an FBAR?
- Even U.S. entities have to file an FBAR
- Is an entity FBAR due at the same time?
- Who files the FBAR for the entity?
- What if the entity never filed an FBAR?
- Who does the IRS Penalize?
- How can I bring the entity into compliance?
Who Must File an FBAR
The FBAR requirement is not limited to U.S. Individuals, but rather, U.S. Persons, which is more encompassing than just individuals, and includes businesses.
Who Is a U.S. Person?
A U.S. person can typically be broken down into two (2) categories:
When it comes to international tax and foreign/offshore IRS, FBAR and FATCA Reporting, one of the biggest sources of confusion (understandably) is who is considered a US person.
When dealing with individuals, a U.S. person is typically going to include:
- U.S. Citizens
- Legal Permanent Resident; and
- Foreign Nationals who meets the Substantial Presence Test.
An Additional category of U.S. person that most people overlook is U.S. Businesses, including Corporations, Partnerships, and other U.S. businesses.
A U.S. is considered a U.S. person, and if a U.S. business has foreign accounts, then it may have to file an FBAR if the reporting threshold is met.
FBAR Reporting for Businesses
A U.S. business is considered a US person and the FBAR requirement is for U.S. persons – not merely U.S. “individuals.”
If a business is considered a U.S. Person then the business is also required to file an FBAR when business has foreign accounts overseas and meets the “more than $10,000 in annual aggregate total” threshold.
Even if the foreign account is in the name of the U.S. Business, and not an individual, the U.S. Person business must still “FBAR Report” the account.
As provided by the IRS:
United States persons are required to file an FBAR if:
United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States
Golding & Golding – Common FBAR Business Examples
A U.S. corporation begins to conduct business outside of United States. In many countries it is easier and almost necessary for a U.S. person to open a foreign bank in order to make purchases in local currency, pay vendors, contractors, etc. Therefore, the corporation opens a corporate account in the foreign country.
As a result, the U.S. corporation is required to file the FBAR.
A U.S. partnership decides it is less expensive to operate solely as a U.S. partnership and expand by securing registered agents in many different countries. Despite the fact that it is still a U.S. partnership that does not have any foreign entities associated with the partnership, the partnership still must disclose any foreign accounts that the partnership has in any one of the countries.
Employee of the Corporation
David is an employee of the corporation and has signature authority over the account. Even though none of the money personally belongs to David, David is an employee of the company who has signature authority over the foreign account. Therefore David is required to complete the FBAR portion relating to signatories (some exceptions apply)
A US trust has beneficiaries outside of the United States. In order for the trust to make payments beneficiaries outside of the United States, the trust opens foreign bank accounts outside of United States.
As a result, the US trust is required to disclose foreign bank accounts on an FBAR – even though the trust is a US trust.
** The trust can avoid having to file a form 3520-A if it a US trust, but would still have to file the FBAR.
U.S. Individual with a Foreign Business
This is a common situation. For example, Peter owns multiple rental properties in Latin America. He owns the companies in a Sociedad Anonima. He is a 90% owner of the business with a local registered agent serving as the other 10% owner.
The foreign corporation has multiple accounts and Peter is the majority owner of the foreign corporation. Since Peter has signature authority over the accounts, he is required to report the accounts, even though he has never stepped foot into the foreign financial institution.
Unreported Foreign Accounts
If you had and FBAR filing requirement but have not filed the FBAR in one or more years, you may consider getting into compliance through One of the approved FBAR Amnesty IRS voluntary disclosure programs.
Do I Need an FBAR Attorney?
Maybe…and maybe not.
When You May Not Need an FBAR Attorney
If your FBAR filing is timely in the current year, and you have a CPA or Tax Professional who understands the form – and you do not have any years of non-compliance, then you may not need an Attorney.
That is because if there is no untimeliness, and no lack of compliance – then there should be no FBAR penalty issues.
Under most other circumstances, you will need an FBAR Attorney to assist you.
**You may have other international informational returns which should have been filed, but never were. The non-filing of these forms may subject you to additional fines and penalties. Therefore, if in addition to a bank account(s) you also have foreign investments, trusts, businesses, etc. you should consider speaking with an experienced FBAR attorney to assess your tax and international reporting requirements.
When You Need an FBAR Attorney
If you are out of compliance for not properly (aka timely and accurately) filing the FBAR in one or more years, you should speak with an experienced FBAR Attorney.
Each person’s facts and circumstances are different. And, depending on the specific facts and circumstances surrounding the failure of timely filing the FBAR a person may find himself or herself subject to extremely high monetary fines and penalties, including a penalty that reaches a 100% value of the unreported foreign accounts and assets (in a multi-year audit in which a person is found willful) and/or by themselves subject to a criminal investigation for tax fraud or tax evasion.
We Specialize in FBAR Voluntary Disclosure
We have successfully handled a diverse range of FBAR Voluntary Disclosure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Unlike other attorneys who call themselves specialists but handle 10 different areas of tax law, purchase multiple domain names, and even practice outside of tax, we are absolutely dedicated to FBAR Voluntary Disclosure.
No Case is Too Big; No Case is Too Small.
We represent all different types of clients. High net-worth investors (over $40 million), smaller cases ($100,000) and everything in-between.
We represent clients in over 60 countries and nationwide, with all different types of assets, including (each link takes you to a Golding & Golding free summary):
- Foreign Mutual Funds
- Foreign Life Insurance
- Fixing Quiet Disclosure
- Foreign Real Estate Income
- Foreign Real Estate Sales
- Foreign Earned Income Exclusion
- Subpart F Income
- Foreign Inheritance
- Foreign Pension
- Form 3520
- Form 5471
- Form 8621
- Form 8865
- Form 8938 (FATCA)
Who Submits to FBAR Voluntary Disclosure?
All different types of people submit to OVDP. We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
…We even represent IRS Staff with getting into compliance.
Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist
Our Managing Partner, Sean M. Golding, JD, LLM, EA is the only Attorney nationwide who has earned the Certified Tax Law Specialist credential and specializes in IRS Offshore Voluntary Disclosure and closely related matters.
In addition to earning the Certified Tax Law Certification, Sean also holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS.)
He is frequently called upon to lecture and write on issues involving FBAR Voluntary Disclosure.
Less than 1% of Tax Attorneys Nationwide
Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.
The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.
Our International Tax Lawyers represent hundreds of taxpayers annually in over 60 countries.
IRS Penalties for For Not Disclosing Offshore Assets or Income (2018)
In the last 5 to 10 years, Internal Revenue Service and U.S. Government in general have made the enforcement of offshore and foreign reporting and disclosure requirements a key enforcement priority.
This typically includes timely and accurate reporting of foreign income, assets, investments, and accounts.
IRS Offshore Penalties
Depending on facts facts and circumstances of the noncompliance the IRS has the right to issue extremely lopsided penalties against any individual who is out of IRS compliance.
Even a cursory review of the IRS penalties and the Standard of Proof required by the IRS to prove the penalties reflects that even minor infractions can result in significant penalties.
Not Everyone Gets Penalized
We understand that as you research issues online, many attorneys and CPAs seem to enjoy the fear mongering aspect of being tax professionals – we do not.
They toss around terms like “five years in prison,” “$500,000 Fine”, or “Tax Fraud” to scare you. They do this, without providing examples of the penalties and without placing these penalties into context.
For example, if an individual was clearly non-willful, they are not going to jail for five years or being penalized millions of dollars for tax evasion.
Still, some attorneys go out of their way to unnecessarily scare individuals with relatively benign facts with jail or prison, but of course neglect the fact that the U.S. Government still must prove a person acted beyond a reasonable doubt to pursue criminal charges.
You Have Methods for Getting IRS Compliant
In reality, the IRS doesn’t issue penalties against every individual with undisclosed or unreported foreign money. In addition, the IRS offers various amnesty program to facilitate compliance.
In addition, depending on your facts and circumstances you may qualify for various alternatives to amnesty, which may result in a complete penalty waiver.
IRS Offshore Penalty List
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
A Penalty for failing to file FBARs
United States citizens, residents and certain other persons must annually report 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 financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 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.
FATCA Form 8938
Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048. This return also reports the receipt of gifts from foreign entities under IRC § 6039F. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 5472
Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC §§ 6038A and 6038C. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
A Penalty for failing to file Form 926
Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. 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. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
What Should You Do?
Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.
Summary of IRS Offshore Voluntary Disclosure
IRS Voluntary Disclosure of Foreign or Offshore Accounts is a legal method for getting into IRS Tax and Reporting compliance before the IRS finds you first.