Small Business Taxes & Management^TM--Copyright 2008, A/N Group, Inc.

Do you have a foreign financial account? Or an interest in one? Or signature authority in one? While the requirement for filing Form TD F 90-22.1 has been law for many years, some individuals, particularly those with accounts over the threshold, but still small, have simply ignored the filing requirement. If you're in that group, you should take the reporting requirement seriously. The IRS and the Treasury has more access to more information on foreign accounts than ever before and there are significant penalties for failure to report. Here's a summary of the rules. If you own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account, then you may be required to report the account yearly to the Internal Revenue Service. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR), if

• you have a financial interest in, signature authority or other authority over one or more accounts in a foreign country, and
  
• the value of the account exceeds $10,000 at any time during the calendar year.

A United States person is not prohibited from owning foreign accounts. The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

Definition of Terms

A “United States person” is:

• A citizen or resident of the United States,
  
• A domestic partnership,
  
• A domestic corporation, or
  
• A domestic estate or trust

A foreign country includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

Reporting and Filing Information

A person who holds a foreign account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on Form 1040 Schedule B, and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder’s reporting obligation.

A foreign account holder must mail the Form TD F 90-22.1 on or before June 30 of the following year to:

U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621.

For private delivery services:

U.S. Department of Treasury
Currency Transaction Reporting
985 Michigan Avenue
Detroit, Mich., 48226

The Report of Foreign Bank and Financial Accounts (FBAR) is not to be filed with the filer’s Federal income tax return. An extension to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing the FBAR.

Penalties for Noncompliance

Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both. Civil and criminal penalties for non-compliance with the FBAR filing requirements are severe. Civil penalties for a non-willful violation can range up to $10,000 per violation. Civil penalties for a willful violation can range up to the greater of $100,000 or 50 percent of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a $500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.

If a holder of a foreign account was required to file FBARs for earlier years, however, he or she should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be assessed if IRS determines that the late filings were due to reasonable cause. The account holder should keep copies of their statement for his or her own record.

There are some limited exceptions to the reporting requirement. For information, go to www.irs.gov/businesses/small/article/0,,id=148849,00.html. For a copy of the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts go to www.irs.gov/pub/irs-pdf/f90221.pdf.

--Last Update 06/17/08