FBAR, A New Financial Disclosure for U.S. Taxpayers
Just like any other country, filing income tax returns both individual tax return and business tax return is something that is compulsory in the United States. However, for American taxpayers there is something that is more important than filing tax returns. Referred to as FBAR (Foreign Bank and Financial Account Report), it is filed every year in the month of June. The FBAR regulations became effective on March 28, 2011 and as part of it’s ‘any United States person’ having a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, is required to report that account yearly to the Internal Revenue Service.
The FBAR has its roots in the Bank Secrecy Act of 1970, which was enacted in order to collect information on foreign bank accounts. However, today, the reins of FBAR are with the IRS who has linked it with the tax return in order to check tax evasion. FBAR filing is mandatory if the aggregate value of foreign bank account / accounts exceeds US $10,000 at any time during the calendar year.
FBAR is different from tax return on many counts and they are
* FBAR is not a tax return but an information return.
* Tax returns are filed in April while FBAR in June.
* FBAR, unlike a tax form, is not protected from disclosure.
* FBAR is filed not in the IRS form but in the Treasury Department form TDF 90-22.1
To understand FBAR clearly, it is necessary to be familiar with the following terms:
* United States Person
Any person who is a citizen or resident of the United States, or a person in and doing business in the United States is a United States person. It can also stand for a domestic partnership, a domestic corporation or a domestic estate or trust.
* Foreign Country
It includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).
* Financial Account
It includes any bank, securities, securities derivatives, or other financial instruments accounts including mutual funds. The term includes any savings, demand, checking, deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution. Individual bonds, notes, or stock certificates are not a financial account but Retirement accounts and life insurance policies with cash value are considered financial accounts.
FBAR filing is very important as willful and non-willful failure to file FBAR is strictly dealt with. The taxpayer has to pay $10,000 as penalty and in some cases would have to pay 40% to 70% of the current value of their accounts, plus attorney’s fees.
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