In an increasingly global economy, more taxpayers have money in foreign accounts each year. While most Maryland residents are aware they need to file a Federal tax return, they sometimes forget the Foreign Bank Account Report (FBAR), which can result in IRS penalties. U.S. taxpayers who have signature authority or financial interests in foreign bank accounts with an aggregate value over $10,000 during a calendar year – even if the accounts hit the $10,000 total for a very short time – must file an FBAR.
If you failed to file FBAR and are facing penalties, tax attorney Juda Gabaie of Gabaie & Associates, LLC, will protect your best interests while creating a custom solution for you.
Reporting Requirements
The IRS requires anyone who is a United States person for tax purposes to file FBAR if he or she has financial control over $10,000 or more in foreign bank accounts. A "United States person" is a:
- United States citizen,
- green card holder, or
- resident alien.
The requirement also includes:
- LLCs,
- partnerships,
- estates, and
- trusts.
You must file FBAR whether you are living on U.S. soil or abroad. If your money is in a branch of a U.S. bank in a foreign country, you must file FBAR, but if your money is in a branch of a foreign bank located in the U.S., you do not have to file.
FBAR requires you to disclose any foreign bank, financial, and securities accounts as well as foreign-issued life insurance policies and annuities with cash value. This allows the government to track money hidden in foreign accounts for illegal purposes, e.g., evading taxes or funding terrorism.
The $10,000 threshold may be:
- in one account in your name,
- in several accounts in your name, or
- in someone else's account of which you have signature authority.
You are required to file FBAR even if your account totals hit $10,000 for just a brief period during the calendar year.
Filing Requirements
Taxpayers who meet the requirements for FBAR use Form 114, Report of Foreign Bank and Financial Accounts. This form is filed electronically with the Financial Crimes Enforcement Network (FinCEN), which is part of the Department of Treasury, not the IRS. This is not part of your tax return. You must file FBAR even if you are not required to file a U.S. tax return.
Deferrals
The deadline for filing FBAR is April 15 each year. U.S. taxpayers living abroad have an automatic two-month extension, so their deadline to file is June 15. If you miss the April 15 deadline, FinCEN automatically grants you a six-month extension to October 15. You do not specifically have to request this extension.
Exceptions
The FBAR instructions include several exceptions to the reporting requirements. These include:
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRAs
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over but no financial interest in a foreign financial account
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
- Foreign financial accounts maintained on a United States military banking facility.
Voluntary Disclosure
Effective September 28, 2018, the IRS closed the Offshore Voluntary Disclosure Program (OVDP) due to increasing awareness of offshore account reporting obligations.
If you failed to disclose foreign accounts for prior tax years, you can file delinquent FBARs along with a statement explaining why you are filing late. Whether you will face civil or criminal penalties depends on the nature of your delinquency. Each case is evaluated individually.
Penalties
If you fail to file your FBAR on time, you may face criminal charges and civil penalties. The failure may be non-willful or willful. Willful failure to file is the more severe charge, and the IRS has the burden of proving that you voluntarily breached your known legal duty to file.
- If you have a non-willful failure to file, the fine is $10,000.
- If you have a willful failure to file, the fine is $100,000 or 50 percent of the foreign account balance, whichever is greater.
The IRS is more likely to pursue criminal charges in willful failure to file cases than non-willful failure to file cases but may pursue criminal charges in both circumstances. Potential criminal charges include:
- Willfully failing to file an FBAR (up to 10 years in prison and up to $500,000 in fines)
- Willfully filing a false FBAR (up to 10 years in prison and up to $500,000 in fines)
- Failure to file a tax return (up to one year in jail and up to $100,000 in fines)
- Filing a false return (up to three years in prison and up to $250,000 in fines)
- Tax evasion (up to five years in prison and up to $250,000 in fines)
- Tax perjury (up to five years in prison and up to $250,000 in fines)
- Tax obstruction (up to 10 years in prison and up to $250,000 in fines)
- Conspiracy (up to five years in prison and up to $250,000 in fines).
The IRS will not impose penalties for failing to file your FBAR if you reported all your income from foreign accounts on your tax return and paid tax on that income. Additionally, to avoid penalties, you must not have a request from the IRS for delinquent tax returns that match the years of your delinquent FBARs, and you may not be under income tax examination.
Contact an Experienced Maryland Tax Attorney Today
If you are facing civil penalties and criminal charges because you failed to file an FBAR, or if you know you have not filed FBAR for previous years and are not yet facing charges, contact Gabaie & Associates, LLC, today. If convicted, you may face hefty fines that can permanently devastate your finances and long jail times that can have long-lasting consequences on your life.
Tax attorney Juda Gabaie understands that this is a serious issue and will fight for you. Time is of the essence, so contact him today online or at (443) 345-8291.
