What is ‘FBAR’?
Foreign Bank Account Reporting
Form TDF 90 221
It is a simple form used to collect basic information on financial accounts overseas where American citizens or residents have control over them – whether it is because they have signature authority on the account or because they can exercise control over them (i.e. owned by a wife or an organization where they have an important stake). The form is sent to the Department of the Treasury directly, and not with your US tax returns (Although commonly mis-interpreted as a form that goes along with and makes part of your yearly tax returns).
It is an informational return only, meaning it will have no information on the filer’s tax liability – although a common factor for taxpayers with IRS Problems.
The definition includes a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts. Of course ‘other types’ is not the type of definition you are looking for, but it is as specific as the IRS gets. People may wonder if their Australian Super Annuation fund is one to be reported on the TDF 90 221 (A bigger question would be related to 3520-A though), or if their Colombian Pension in a “Fondo de Pensiones” needs to be reported, and it is unlikely they will find guidance specific to their situation. The best advice that can be given is for those accounts to be reported if they represent liquid assets under your control – Remember this is just an informational return, so you won’t have to pay any taxes related to these accounts (Of course, any interest or dividends they generate indeed need to be reported on Schedule B).
Accounts that need to be reported are as described above, if their balance was U$10,000 or more at any point during the year. This means the account could have been at a $1 balance for 364 days, and on just one of the days (Say March 1st for sake of an example) you received a wire transfer for $10,000 on behalf of someone and immediately there after sent it out – and this account needs to be reported.
Also an answer you will not find specifically – but the answer is obvious. The IRS want’s to know where to go look for information to determine if you are under reporting your income. The department of the treasury also can use this information for money laundering investigations.
The form must be filed by June 30th of each year – no extensions apply (Even if you filed an extension for your personal returns you must file this form on time; one day late and you are subject to an automatic penalty of $10,000).
The penalties for not filing an ‘FBAR’ are harsh. They range from an automatic penalty of $10,000, which you can expect to be generated by a computer when your late TDF 90 221 is received, to 50% of the balance in the account (Calculated yearly) and criminal charges (Potential Jail time) in the event the IRS Criminal Investigator assigned to your case can prove that you willfully withheld this information from the government.
This form has been in the news extensively lately due to the increased efforts by the IRS to bring taxpayers into compliance. The most talked about aspect of their efforts is the voluntary disclosure program (Offshore Voluntary Disclosure Initiative); unless you willfully withheld this information from the IRS and intentionally avoided the payment of taxes related to the interest or other financial gains from these accounts, DO NOT GO INTO THE VOLUNTARY DISCLOSURE PROGRAM. The IRS has made it absolutely clear that this program was not designed for people with a compliance issue (See Question 17 here:http://www.irs.gov/businesses/international/article/0,,id=235699,00.html ).
If there is a question of willfulness in your situation, note that you are best served by an experienced attorney – such as the ones Tax Planner CPA works with – contact us so we can put you in the right direction. We offer free of charge initial consultations – call us at 617.639.5550 or through the web at: https://www.taxplannercpa.com/clientarea/public/index.php?path_info=quick_quote&client_type=IRS
Related articles you may find interesting:
FBAR Penalties – if you honestly didn’t know about this requirement
Tax Planner CPA is a team of Certified Public Accountants and Enrolled Agents with over 25 years of experience focusing exclusively on the taxation of US taxpayers living abroad. Our services include preparing timely or late FBAR forms. We maintain this knowledgebase where all articles are written by CPA’s, Enrolled Agents, or attorneys (Except for those on Expat Life – which have proven to be a popular read with fun facts on different cities!). Our main objective is to educate Americans abroad on their tax responsibilities, so that they can look for planning alternatives on time. They are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid. If you found this article helpful, you’ll likely benefit from our future ones as well – so we encourage you to avoid pitfalls and join our mailing list:
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