The FBAR filing requirement is imposed upon taxpayers through the U.S. Treasury. Under Treasury regulations, any United States person who has a financial interest in a bank, security, or other financial account in a foreign country must make an FBAR filing annually. The purpose of the FBAR filing is to inform the U.S. Treasury of the existence of the taxpayer’s relationship with the foreign account, bank or security (1). The required disclosure must be made on a Form TD-F 90-22.1, commonly referred to as Report of Foreign Bank and Financial Accounts, or FBAR (2).

The Purpose Behind the FBAR Regulations

The U.S. Treasury adopted the FBAR requirements outside of the Internal Revenue Service through the passage of a statute requiring U.S. residents or citizens “to keep records, file reports, or keep records and file reports” when the U.S. person “makes a transaction or maintains a relation for any person with a foreign financial agency” (3). Under this statute, a foreign financial agency is defined as “a person acting for a person as a financial institution, bailee, depository trustee or agent, or acting in a similar way related to money, credit, securities, gold, or in a transaction in money, credit, securities, or gold” other than “a country, a monetary or financial authority acting as a monetary or financial authority, or an international financial institution of which the United States Government is a member.”

Due to the usefulness of this type of information in criminal, tax, and regulatory investigations, Congress enacted the statute allowing the Treasury to establish FBAR rules because “reports filed as a result of this regulation provide leads to investigators that facilitate the identification and tracking of illicit funds or unreported income, as well as providing additional prosecutorial tools to combat money laundering and other federal tax crimes” (4).

Definition of Terms Under FBAR Regulations

For the purposes of the FBAR regulations, “United States person” includes U.S. citizens, alien residents of the United States, and entities “created, organized, or formed under the laws of the United States,” a U.S. state, the District of Columbia, “the Territories and Insular Possessions of the United States,” and “the Indian Tribes” (5). The term “person” includes individuals and “all entities cognizable as legal personalities” and a “foreign country” may include “all geographical areas outside the United States.” For these purposes, an LLC is considered to be a U.S. person, as is a trust organized under the laws of a U.S. state or the District of Columbia.

Who is Required to File an FBAR Report?

The FBAR filing requirement applies to any U.S. person if the aggregate value of the person’s foreign accounts exceeds $10,000 at any point during the calendar year (6). This $10,000 threshold applies to the aggregate of any foreign account or asset held by the U.S. person, and the relevant amount for the purposes of the calculation is the maximum amount of each account or asset during the calendar year. The reporting obligation is triggered even if none of the applicable accounts exceeds $10,000 during the calendar year. Any U.S. person who is required to file an FBAR as a holder of a foreign bank account must also report the existence of the account on his or her U.S. income tax return.

How a Tax Attorney Can Help

Individuals with foreign assets and bank accounts have been under increased scrutiny in recent years. In addition to reporting foreign income, taxpayers must take the important step of filing an FBAR form in order to avoid penalties and fines.

The Tax Lawyer - William D. Hartsock has been successfully helping clients with tax issues related to their foreign assets since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

Resources:

  1. 31 CFR § 1010.350(a).
  2. http://www.irs.gov/pub/irs-pdf/f90221.pdf.
  3. 31 USC § 5314.
  4. Workbook on the Report of Foreign Bank and Financial Accounts (FBAR), http://www.irs.gov/businesses/small/article/0,,id=159757,00.html.
  5. 31 CFR § 1010.350(b).
  6. Form TD F 90-22.1 (Report of Foreign Bank And Financial Accounts), at 6.

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