On July 31, 2015, the President signed into law H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. Buried in the bill are some important changes to due dates for returns, including FinCen Report 114 (FBAR).
Starting with the 2016 tax year, the due date for the FBAR will be moved up from June 30, 2017 to April 15, 2017, the same as the due date for personal income tax returns. Just as with personal income tax returns, taxpayers can request a six month extension, which moves the deadline to October 15, 2017. Due dates for the 2015 tax year will remain unchanged, meaning that FBARs will still be due on June 30, 2016, without the possibility of requesting an extension. Additionally, the new law gives the IRS the discretion to waive late-filing penalties for individuals who are required to file FBARs for the first time.
FBARs must be filed by U.S. taxpayers who had a financial interest in or signature authority over foreign financial accounts with an aggregate balance of more than $10,000 at any time during the preceding year. The failure to file an FBAR can result in civil penalties of up to 50% of the foreign account balance for each year. Willful failure to file can also result in criminal prosecution.
While the FBAR filing requirement has existed for some time, it only came under the spotlight recently, with the U.S. government's crackdown on offshore tax evasion that began in approximately 2009. Since then, more than 100 countries around the world have signed Intergovernmental Agreements to exchange information about U.S. bank account holders with the IRS on an annual basis, as part of the Foreign Account Tax Compliance Act (FATCA). The Department of Justice also started a program specifically for Swiss Banks, which requires the banks to provide information about U.S. taxpayers retroactively.
For now, the IRS is still offering voluntary compliance initiatives. For taxpayers whose failure to report foreign accounts was non-willful, the Streamlined Program requires three years of amended tax returns and a penalty equal to 5% of the highest year-end balance. For taxpayers who are at risk of being considered "willful" - meaning that they knew about the reporting requirements but decided not to comply - the Offshore Voluntary Disclosure Program (OVDP) is the safer choice. While the OVDP process is more onerous and results in a higher penalty amount, it offers immunity from criminal prosecution. To be eligible for either of these programs, taxpayers must come forward before their offshore accounts are discovered by the IRS.