Foreign Account Owners Beware!
by Stites & Harbison, PLLC
An important deadline is approaching for those with foreign bank or financial accounts. On June 30, 2015, FinCen 114, more commonly known as the Foreign Bank and Financial Account Report or "FBAR" (formally known as TD 90-22.1), must be electronically filed, and there will be no extensions.
Any person who has a financial interest in or signature authority over foreign financial accounts, including bank accounts, brokerage accounts, mutual funds, trusts, or other types of foreign financial accounts, which in the aggregate exceed $10,000 at any time during the year must timely file an FBAR. Please note that this filing requirement is in addition to other filings that may be required, such as the Form 8938, the Statement of Specified Foreign Financial Assets.
In a recent case, Moore v. United States, the District Court in Washington found that a taxpayer was subject to civil penalties for each of the years from 2005 until 2008 when the taxpayer failed to file the FBAR for the foreign bank accounts owned on behalf of his foreign corporation, as he had a greater than 50 percent interest in the corporation. The taxpayer generally had between $300,000 and $500,000 in those accounts. The taxpayer had filed some of his own tax returns and had also used an accountant for some of the years, but had ignored the question on Schedule B of the 1040 which would have alerted him to the reporting requirement. Moreover, the taxpayer checked "no" on his accountant's organizer regarding whether he had any foreign bank accounts. The Court, therefore, found that he did not have reasonable cause for failure to file, and that the $10,000 per year penalty for each of the four years was reasonable.
It is essential that FBARs are filed in a timely manner. If you have not timely filed your FBARs, the IRS offers several programs to allow you to come into compliance, but you must act prior to coming under any civil or criminal examination by the IRS. Experienced counsel should be consulted by those with unreported accounts so that the proper course of action can be determined.