In recent years, the Internal Revenue Service has increased its efforts to combat offshore tax evasion by implementing FBAR (Report of Foreign Bank and Financial Accounts) and related programs and reporting requirements. You are required to file an FBAR if you had signature authority over or financial interest in any foreign financial accounts, including bank accounts, brokerage accounts, and mutual funds, whose value exceeded $10,000 at any time during the calendar year. But is it possible to file an FBAR jointly with your spouse, or do you have to file separately? And what penalties may be imposed if you fail to file altogether?
Can I File an FBAR Jointly with My Spouse?
The short answer to this question is yes, you are allowed to file an FBAR jointly with your wife or husband – but only under certain circumstances.
You and your spouse must each file an FBAR separately if:
- You have a joint foreign bank account.
- More than one person has a partial interest in a foreign bank account.
If either of the above statements are true, the IRS will determine that each of you has a financial interest in the account, hence the need to file separately.
However, you and your spouse may file an FBAR jointly if all of the following statements are true:
- All accounts which must be reported by the non-filing spouse are owned jointly with the filing spouse.
- The filing spouse reports the account by filing an FBAR, which must be signed and filed on time.
- The filers have completed and submitted Form 114a (Record of Authorization to Electronically File FBARs).
Unless all three of the above statements describe you, you must file separate FBARs.
In the past, taxpayers filed FBAR by using Form TD F 90-22.1. However, the FBAR filing system has been upgraded to a digital format, and TD F 90-22.1 is no longer in use. Today’s taxpayers are required to file FBAR via an online system called the BSA E-Filing System, which uses FinCEN Report 114. (FinCEN refers to the Financial Crimes Enforcement Network, the bureau of the Department of the Treasury which is responsible for fighting money laundering and other financial crimes or “white collar crimes.”)
The BSA E-Filing System may be accessed through FinCEN’s FBAR portal. No pre-registration is necessary if you are filing as an individual or filing jointly with your husband or wife. Only representatives, such as CPAs and attorneys, are required to register prior to filing.
The next FBAR deadline is June 30, 2016.
Penalties for Failure to File an FBAR: Non-Willful vs. Willful Violations
Regardless of whether you and your spouse elect to file your FBARs jointly or separately, failure to file will subject you to substantial civil penalties, which may be further compounded by serious criminal charges depending on the circumstances of your failure to file.
FBAR violations are divided into two categories: willful violations, and non-willful violations. As one might expect, the penalties imposed for willful violations are considerably more severe. However, even non-willful violations can result in the imposition of heavy fines.
If you commit a non-willful FBAR violation for which there is no “reasonable cause,” such as a natural disaster, you can be fined with up to $10,000 per violation. For willful or deliberate violations, the civil penalty increases significantly, climbing to the greater of $100,000 per violation, or 50% of the balance of the account which was not properly disclosed.
Devastating as the civil penalty can be, of even greater concern is the potential for a criminal investigation. If your violation is deemed willful, the IRS may refer the case to the Department of Justice for criminal prosecution. If you are convicted or plead guilty, you face penalties including a maximum fine of $250,000 as well as a prison sentence of up to five years.
Bear in mind the criminal penalties noted above apply only to cases where the defendant simply fails to file an FBAR (or to retain records of the account). If the defendant both fails to file an FBAR and violates additional tax laws, the penalties can double, climbing to a 10-year prison sentence and up to $500,000 in fines.
The IRS notes that criminal penalties will not be imposed for negligent violations, non-willful violations, or “patterns of negligent activity.”
If you have questions or concerns about your compliance with IRS offshore disclosure requirements, it’s extremely important that you address the issue as soon as possible. You may be able to avoid criminal prosecution and pay reduced penalties by participating in the Offshore Voluntary Disclosure Program (OVDP), but once an investigation is initiated against you, you will lose your eligibility to participate. Don’t wait until it’s already too late: to start discussing your tax matter in a free and confidential consultation, call US Tax Help at (800) 810-9312.