Individuals in the U.S. who have offshore investments are now finding out about their FBAR (FinCEN Form 114 Report of Foreign Bank and Financial Accounts) filing obligations.
The publicity surrounding the Foreign Account Tax Compliance Act (“FATCA”), which became law in March 1o, has raised awareness of the need to report foreign accounts and file delinquent FBAR filings under programs such as the Offshore Voluntary Disclosure Program (“OVDP). But, most people are unaware that the filing obligations of FACTA are in addition to FBAR filing obligations.
The experienced international tax lawyer at Columbus, Ohio-based law firm Porter Law Office, LLC represents U.S. taxpayers residing in the U.S. and abroad in reporting their foreign accounts under one of several Internal Revenue Service (“IRS”) offshore voluntary disclosure programs, such as the OVDP. This article outlines an individual’s options in coming forward and reporting income from foreign accounts on the FBAR and meeting their obligations under FATCA.
What Does FATCA Require a U.S. Taxpayer to Report?
FATCA is the law that has given the U.S. the ability to obtain information about foreign accounts held by U.S. taxpayers. FATCA targets offshore tax non-compliance by U.S. taxpayers with foreign accounts by requiring U.S. taxpayers to report information about certain foreign financial accounts and offshore assets. FATCA also requires foreign financial institutions to report information about financial accounts held by U.S. taxpayers. The objective of FATCA is the reporting of foreign financial assets.
Under FATCA, U.S. individual taxpayers must report information about certain foreign financial accounts and offshore assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold. This requirement is in addition to the FBAR requirement.
The practical effect of FATCA is that U.S. taxpayers now must report on a variety of forms. The FBAR obligations were created when the Bank Secrecy Act of 1970 was enacted, well before FATCA became law. FATCA adds another lawyer to reporting burden, but does not replace the need to file FBARs for Form 8938.
Review the following link for a comparison of the filing requirements for Form 8938 and the FBAR.
Filing Delinquent FBARs
The FBAR has been around for decades, but did not become commonplace until around 2009. At the time, the U.S. government, scrambling to find revenue during and after the great recession, began focusing enforcement efforts on identifying concealed offshore bank accounts.
The general FBAR filing requirements are that U.S. persons with foreign bank accounts exceeding $10,000 must file an FBAR by June 30 for the prior tax year. The civil penalties for failing to file the FBAR are significant. The criminal penalties can be a half million dollars, and can result in imprisonment of up to 10 years.
There are two different FBAR civil penalties: willful and non-willful. If you willfully failed to file the FBAR, you can be penalized the greater of $100,000 or 50% of the value of the account for each violation (meaning that you could be hit this penalty for each you willfully failed to file the FBAR). On the other hand, non-willful FBAR penalties can be as high as $10,000 per year.
FATCA Requires Compliance
If you have not filed an FBAR in the past, and now learned that you need to file, you have a limited amount of time to come forward to the IRS. The IRS recently modified the Offshore Voluntary Disclosure Program (“OVDP”), increasing the offshore penalty from 27.5% to 50% for individuals who have accounts with one or more banks investigated by the U.S. Department of Justice. The new OVDP is now most applicable for those individuals who used offshore accounts for willful offshore tax evasion.
If your failure to file the FBAR was due to non-willful conduct, the expanded IRS’s Streamlined Filing Compliance Procedures (“SFCP”) may be a better way to make a voluntary disclosure. The expanded Streamlined Filing Compliance Procedures now apply to both foreign and domestic U.S. taxpayers. In either case, your failure to file FBARs must have been non-willful. It is very important to understand the definition of non-willful conduct under the SFCPs.
Practice Pointer: Be very careful in your argument that your failure to file was non-willful. The definition of non-willful is fairly limited in its application. Consult an experienced tax lawyer to review your individual facts and circumstances.
If you are a domestic U.S. taxpayer, and your failure to file was non-willful, you will only be subject to a 5% miscellaneous offshore penalty. If you were a foreign U.S. taxpayer, you will not be penalized for non-willful failures under the Streamlined Filing Compliance Procedures.
Contact an Experienced Columbus Tax Lawyer
Voluntary Disclosure and FBAR Representation
The tax lawyer at the Columbus, Ohio-based law firm Porter Law Office, LLC has in depth experience resolving difficult voluntary disclosures for reporting income from foreign investments and filing FBARs. By hiring Porter Law Office, LLC, you will be guided through your tax compliance obligations under FATCA to the best possible resolution at the least overall cost. Ohio tax lawyer Matthew R. Porter is an experienced international tax attorney who understands what it takes to overcome the legal hurdles associated with FATCA and to file delinquent FBARs under the IRS’s voluntary disclosure procedures. Schedule a free consultation today to discuss your delinquent FBAR filing options.