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Jun 2014
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June 05, 2014

Reports on foreign bank accounts must be filed electronically by June 30


Individual and corporate taxpayers with a financial interest in or signature authority over a foreign financial account -- including a bank account, brokerage account, mutual fund, trust or other foreign financial account with an aggregate value in excess of $10,000 at any time during 2013 -- must generally file a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) by June 30.  These reports must now be filed electronically.  There are limited exceptions to these reporting requirements, including exemptions for participants and beneficiaries in U.S. tax-qualified retirement plans.

The FBAR is a separate filing from a taxpayer’s federal income tax return, and thus filing an extension to file an income tax return does not extend the time to file an FBAR. There is currently no provision to request an extension of time to file an FBAR.
 
Filing an FBAR is not excused by reporting income from foreign accounts on a taxpayer’s federal income tax return, and the requirement to file Form 8938, Statement of Specified Foreign Assets, with the taxpayer’s income tax return is not excused by filing the FBAR.
 
The penalties for failure to file an FBAR are significant, and can include criminal sanctions. Non-willful violations are subject to a civil penalty not to exceed $10,000 per violation unless they are due to reasonable cause. The reasonable cause standard has generally been very narrowly applied by the U.S. Treasury Department. 
 
Willful violations may be subject to a penalty of the greater of $100,000 or 50% of the balance in the account at the time of the violation. This means, for example, that a taxpayer who willfully failed to file FBARS over a two year period for accounts with a balance of $1,000,000 each year is exposed to a potential $1,000,000 penalty. Taxpayers who failed to file FBARs in prior years should consider participating in the IRS’s Offshore Voluntary Disclosure Program to reduce the monetary penalties, and avoid criminal prosecution, for prior year violations.
 
Please contact Jay Kennedy (248.784.5180 or jkennedy@wnj.com) or one of our other tax attorneys if you have any questions regarding the FBAR requirements, including possible reduced penalties for failures to file FBARs in prior year under the Offshore Voluntary Disclosure Program.

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