In general, individual taxpayers with a beneficial interest in significant assets and accounts overseas must file a Form TD F 90-22.1 (Report Of Foreign Bank And Financial Accounts), an annual report commonly referred to as an “FBAR.” Effective July 1, 2013, it is now mandatory to file FBARs electronically through the BSA E-Filing System (link: http://bsaefiling.fincen.treas.gov/main.html).
Who Must File:
United States residents and entities (i.e., trusts, estates, partnerships, limited liability companies, and corporations) must file an FBAR if:
- They had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The combined value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
Some taxpayers are surprised that having mere signatory authority (such as a power of attorney) on an overseas account can result in a reporting requirement. It is important to make sure you are aware of any connection you have with any overseas account because the penalties for failing to file FBARs are quite steep (generally, $10,000 per account, or $100,000 per account if the IRS finds that you willfully failed to file).
Also, please note that if your account (or combined accounts) exceeded $10,000, at any time during the year (even if it was just for 1 day in February), then you must file an FBAR for that year. Thus, if you have several small accounts overseas, then you must be very careful to monitor how much all of those accounts have in them at all times to make sure that you are complying with the FBAR filing requirement.
How to File:In order to use the new e-filing system, taxpayers must submit a User Application Form. While the User Application Form is relatively simple and easy to fill out, it can take up to two weeks to receive a User ID for the e-filing system. Therefore, taxpayers must ensure that they submit their User Application Form well in advance of the FBAR filing deadline (June 30th of the following year). There are no extensions to file FBARs, and civil penalties for failure to file FBARs can be as steep as $10,000 per return (although there is a reasonable cause defense).