The purpose of the FBAR filing requirement, or Report of Foreign Bank and Accounts, is to crack down on taxpayers who attempt to conceal assets and income held in offshore financial accounts. The Internal Revenue Service imposes harsh penalties for willful and even non-willful violations, and failure to file an FBAR could cost you tens or even hundreds of thousands of dollars. If the IRS decides the failure was deliberate, you could even be criminally prosecuted. In light of these considerable consequences, it is critical that you file your FBAR on time – and the deadline has just been updated.
Who is Required to Report Foreign Income?
Before we go over the new FBAR deadlines, let’s quickly determine whether you are actually subject to the FBAR filing requirement. Consider these questions:
- Are you a US person who has signature authority over, or financial interest in, one or more financial accounts located outside the US?
- By the IRS’ definition, “US person” means any citizen or resident of the United States, including domestic corporations, domestic business partnerships, domestic estates, and certain trusts.
- “Signature authority” means you control transactions by signing your name on financial documents.
- You have “financial interest in” an account if you are the owner or have legal title.
- Did the value of the account or accounts surpass $10,000 at any point in the year, even if it was only for a brief period of time?
If you answered yes to these questions, you must file an FBAR. This includes expatriates. If you aren’t sure whether the above descriptions apply to you, it is prudent to err on the side of caution by contacting an experienced CPA. Where IRS investigations are concerned, it is always better to be safe than sorry. There is no such thing as a “stupid question” when the penalties for accidental noncompliance are so severe.
New Filing Deadline for 2016 FBAR: April 15, 2017
The FBAR filing deadline is normally June 30. However, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, which was signed into law by President Obama earlier this year, makes modifications to the standard FBAR due date.
The new FBAR deadline is April 15. Before you panic, keep in mind the updated filing deadline applies only to the 2016 FBAR, meaning the due date would be April 15, 2017. (The 2015 FBAR is due on June 30, 2016, while the 2014 FBAR was due June 30, 2015.)
As we discussed in a previous article, certain taxpayers abroad are eligible for income tax filing deadline extensions. Extensions are also available for the new FBAR deadline. If you are unable to file your 2016 FBAR in time to meet the April 15, 2017 deadline, you may file a request for a six-month extension, which would grant you until October 15, 2017 to file your 2016 FBAR.
On one hand, the date change is a positive step toward greater simplicity, because it brings the FBAR deadline into alignment with the normal tax filing deadline. On the other hand, taxpayers now have less time to adequately prepare for filing (unless they are able to obtain an extension). The sooner you contact a CPA for assistance, the easier it will be to resolve problems and get questions answered well in advance of the deadline.
There is only one way to file an FBAR: online. Taxpayers must file via the FinCEN BSA E-Filing System, which replaces the previous Form TD F 90-22.1.
As noted above, the penalties for failure to file are severe: up to $10,000 per non-willful violation, and up to $100,000 per willful (intentional) violation, or 50% of the balance in the account – whichever number is greater. Willful violations may furthermore trigger a criminal investigation, which could result in imprisonment and the imposition of additional fines if the defendant pleads guilty or is convicted.
Who Must File Form 8938?
Please be advised that the updated deadline does not eliminate the standing requirement for certain taxpayers to additionally file Form 8938 (Statement of Specified Foreign Financial Assets). Filing this form is its own requirement independent of FBAR. You must file Form 8938 if all three of the following statements apply:
- You are a “specified individual,” which includes:
- US citizens.
- Resident aliens.
- Nonresident aliens who either (1) elect to be treated as resident aliens, or (2) are residents of Puerto Rico or American Samoa.
- You have an interest in a “specified foreign financial asset,” meaning:
- The account is held with a foreign financial institution (FFI).
- You have assets outside a US or foreign account (e.g. stocks issued by non-US persons, defined above).
- The value of your account or accounts exceeds the following limits:
- Taxpayers living abroad – $200,000 to $600,000, depending on certain factors.
- Single domestic taxpayers – $50,000 on the final day of the tax year, or $75,000 at any point during the tax year.
- Married domestic taxpayers, filing jointly – $100,000 on the final day of the tax year, or $150,000 at any point during the tax year. (If you are married, you may wish to file a joint FBAR.)
- Married domestic taxpayers, filing separately – See single domestic taxpayers.
If you need help understanding how the new FBAR due date affects you, or if you have any questions about your obligation to file Form 8938, call CPA Ted Kleinman at (800) 810-9312 for a free and private tax consultation.