A new law signed recently by President Obama will change the filing deadline for reporting foreign financial assets, bringing it into alignment with the standard April 15 deadline for filing income tax returns. The change will take effect starting with the 2016 tax year.
Who has to file an FBAR?
All U.S. taxpayers - including non-citizens - are required to file a Report of Foreign Bank and Financial Accounts (FBAR) for every year that they have a financial interest in or signature authority over foreign financial assets worth a combined total of at least $10,000. The requirement applies even if the combined value of the foreign accounts is less than $10,000 at year's end, so long as it reached that threshold at any point during the year. An FBAR must be filed separately from the taxpayer's tax return, despite the fact that the income from the foreign accounts has already been reported to the IRS.
In years past, American taxpayers who were required to file an FBAR were given a deadline of June 30, which was two and a half months later than the income tax filing deadline. The new deadline has been hailed by some as an important step toward a more integrated reporting system that could help taxpayers with foreign assets better understand and keep track of their reporting obligations.
What are the penalties for failing to report foreign financial assets?
Along with the new filing deadline, the IRS has issued a memo containing new guidance on the penalty structure for failing to report foreign bank accounts and other financial assets. The guidance seeks to ensure that FBAR penalties are assessed on a more consistent and streamlined basis.
Generally, the penalty for a non-willful FBAR violation is $10,000. The IRS views each account that was not reported on an FBAR for a particular year to be a separate violation, meaning the $10,000 penalty can potentially be assessed on a per-year per-account basis.
Under the new guidance, Revenue Agents may mitigate the total amount of the FBAR penalties, depending on the conduct of the taxpayer and the value of the foreign accounts. Rather than asserting the penalties on a per-year per-account basis, a penalty of $10,000 might be assessed for each tax year. In exceptional cases, a single penalty of $10,000 might be assessed for all covered years. For taxpayers whose failure to report foreign accounts was willful, penalties can reach 50% of the highest balance for each year.
Taxpayers with undisclosed accounts can avoid these severe penalties by taking advantage of one of the ongoing voluntary compliance initiatives being offered by the IRS. To be eligible, taxpayers must come forward voluntarily before the IRS discovers the accounts.
Get legal advice if you have unreported foreign assets
Along with the financial penalties described above, U.S. taxpayers who fail to comply with foreign asset reporting laws can face additional fines and other penalties, including potential imprisonment. To help protect your legal and financial interests, it is important to seek help from an experienced tax attorney if you have questions or concerns about your tax liability for offshore bank accounts and other foreign assets. Contact Brown, PC, to discuss your situation and receive customized legal advice based on the individual circumstances involved.Print this Page