Filing FBARs voluntarily should be a priority to any individual U.S. tax person who has unreported offshore accounts. What is more, filing one’s 2016 FBARs are easier, and more convenient than ever due to a change in regulation and due date. However, it should be noted that 2016 FBARs will be due several months earlier, with a new submission date of April 18, 2017, aligning with the tax return date.
Voluntary disclosure programs were designed for taxpayers potentially at risk of criminal liability and/or substantial civil penalties due to a non-willful failure to report foreign financial assets, and pay taxes due on those unreported assets; before the Internal Revenue Service (IRS) discovers the violation, and imposes any applicable penalties.
In addition to complying with the filing requirements, and paying any additional tax, interest and any applicable penalties due, the taxpayer must sign a statement certifying that:
1. He or she is eligible for the streamlined procedure(s);
2. All required FBARs have been filed; and
3. The failure to fulfill the reporting obligations were not due to willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
You must file an FBAR if:
1. You are a United States “person” (this can include residents in the United States on a visa);
2. You had signatory authority, or a financial interest over any financial account (including a trust, mutual fund, bank or brokerage account) in a foreign country or jurisdiction; and
3. The total of all such foreign accounts exceeded $10,000.00, if even for a day, in a given year.
Reporting obligations under FBARs include taxpayers who are legally residing in the United States on a visa, in addition to United States citizens. Additionally, reporting obligations may fall on an individual who is named as a joint owner on the account, even if the other joint owner has a legal claim to the funds. What is more, merely having signatory authority, or the ability to withdraw or transfer funds from an overseas account in excess of $10,000.00 can result in an FBAR reporting obligation. The FBAR is an annual report that must be electronically filed with the Department of Treasury on or before April 15th (April 18, 2017) of the year following the calendar year being reported. Extensions up to October 15th are now permitted for FBAR submissions.
Civil penalties for failing to file an FBAR, and/or disclose the foreign accounts can be significant. The IRS can impose a $10,000.00 penalty for each non-willful violation of the FBAR requirement; where a person who willfully fails to file an FBAR may be penalized to the greater of $100,00.00 or 50% of the account’s highest balance. Furthermore, criminal penalties for a willful failure to file can reach $250,000.00, 5 years in prison, or both. Civil and criminal FBAR penalties may be imposed together; and as a matter of law the IRS has 6 years to assert an FBAR penalty.
Taxpayers with undisclosed foreign accounts should voluntarily disclose the violations because it will enable them to become compliant; avoiding substantial civil penalties, and generally eliminating the risk of criminal prosecution. Making a voluntary disclosure can also provide the opportunity to calculate, with some certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS, and the imposition of substantial penalties; including the fraud penalty, the foreign information return penalties, and an increased risk of criminal prosecution. The IRS remains actively engaged in searching out the identities of those with undisclosed foreign accounts; and this information has increasingly become more available to the IRS through FATCA, and tax treaties.