United States Taxpayers with financial interest in foreign financial account including but not limited to bank account, foreign trust, mutual fund or a brokerage account and the account balance exceeds $10,000 at any time of the calendar year are required by the Bank secrecy Act to file a Foreign Bank Account report (FBAR) on an annual basis.
FBAR filing obligations do not only affect foreign account holders being but also United States citizens with signatory authority over foreign accounts. Signatory authority means anyone with the power to direct the use of funds or directly use the funds in a foreign account.
Today, United States taxpayers can file this information online by filing a Financial Crimes Enforcement Network (FinCen) form 114, Foreign Bank Account Report (FBAR).
For the years 2014 and 2015, FBAR deadline was June 30th but starting form 2017, the FBAR deadline was moved to April 15. This was after President Obama signed P.L. 114-41, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 into law.
The filing requirement for Foreign Bank Account Report from the calendar year 2016 will be April 2015 in alignment with the federal income tax returns filing deadline.
The act also mandates a six months a six months extension from April 15. Therefore, filers who fail to meet FBAR deadline get an automatic six months up to Oct 15th. No requests are required for this extension. Previously, you had to make timely filing as no extension was available.
The new rules however do not change FBAR filing method. The Foreign account report should be filed electronically by filling Form FinCEN 114. This form should be filed separately from a taxpayer’s income tax return.
Any taxpayer fails to file FBAR is subject to criminal and civil penalties. A non willing violation is subject to a civil penalty of $10,000. But if there is a reasonable cause of violation and account balance is reported accurately, no penalty is imposed.
On the other hand, a taxpayer who willingly fails to file a Foreign Bank account report or voluntary misrepresents balance is subject to a penalty of &100,000 or a 50% of the balance in the bank account at the time of the violation. Tax, interest and accuracy penalty of between 20-40% is also added.
Continuous violation is subject to criminal penalty that includes 5 years imprisonment and $250,000. Where the Foreign Bank Account Report violation occurs with the violation of another tax law, the fines can increase up to $500, 000 and 5 years imprisonment.