For United States Taxpayers, filing annual report of Foreign Bank Account report (FBAR) is an important part of satisfying one’s tax obligation.
Generally, United States citizens, residents, estates, domestic entities and trusts with signature authority over or financial interest in foreign financial accounts with balances that exceed $10,000 at any time during the calendar year must file FBAR
Financial interest means you are the owner of the record or holder of the title, you have sufficient interest in the entity or the holder of the legal title is your representative or agent.
Signature authority means you are in control of the disposition of the assets in the foreign account.
Due Date for filing Foreign Bank Account report (FBAR)
Starting from 2016, the deadline for filing Foreign Bank Annual Report is April 15. The date was moved from June 30 to align with the traditional tax filing calendar.
The provisions contained within the Surface Transportation & Veterans Healthcare Choice Improvement Act of 2015 also allows a six month extension of the filing due date. All filers are automatically granted the extension that ends of Oct 15 every year. No requests are required for this extension.
Foreign Bank Account report penalties
A taxpayer who is required to file a Foreign Bank Annual Report and fails to is subject to civil and criminal penalties.
Each non-willingly violation carries a civil penalty of $10,000. However, if there is a reasonable cause of non-compliance and the balance is reported accurately, no penalty is imposed.
The test for willingness is determined by whether there was intentional or voluntary violation on known legal duty. The Internal Revenue Service (IRS) should be able to proof that the person knew they had an obligation to report. If it willingness is found, there is a potential for criminal prosecution. According to IRS, failure to learn about the requirements of operating a foreign account is termed as willful blindness and a person found guilty is liable for penalty.
A person who willingly fails to report the account information or intentionally misrepresents the figures is subject to a civil penalty of $100,000 or 50 per cent of the balance in the account at each time of the violation. This penalty is in addition to interest, tax and an accuracy penalty of between 20-40 per cent.
Willful violation are also subject to criminal penalties which include $250,000 and 5 years imprisonment. If FBAR violation occurs with another violation of tax law, the fines can be increased to $500,000.