IRS Urges Taxpayers To Report Foreign Bank Accounts

by Mike Godfrey, Tax-News.com, Washington

19 June 2008

The US Internal Revenue Service (IRS) has issued a reminder this week to US persons who have bank and other financial accounts in a foreign country that they may be required to report those accounts to the US Department of Treasury by the 30th June deadline.

As globalization increases, the IRS explained, more people in the US have foreign financial accounts.

There is nothing improper about setting up or maintaining such accounts, it reassured taxpayers. However, IRS officials are concerned that US persons may overlook that their accounts are large enough to trigger reporting obligations.

“There are responsibilities that go along with owning such foreign bank and financial accounts,” announced IRS Commissioner Doug Shulman, continuing:

“Foreign account owners must remember that they may have to report their accounts to the government, even if the accounts do not generate any taxable income.”

Since 2000, the number of Report of Foreign Bank and Financial Accounts (FBAR) forms received by the Treasury has increased by nearly 85%, from 174,528 in 2000 to 322,414 in 2007.

Despite this significant increase in filings, concern remains about the degree of reporting compliance for those who are required to file.

US persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Form TD F 90-22.1, each year if they have a financial interest in or signature authority or other authority over any financial accounts, including bank, securities or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds USD10,000 at any time during the calendar year.

The 2007 FBAR form is due 30th June, 2008.

The FBAR is not an income tax return, and should not be mailed with any income tax returns.

The FBAR must be filed on or before the due date to: US Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621.

Unlike with federal income tax returns, requests for an extension of time to file an FBAR are not granted.

Civil and criminal penalties for non-compliance with the FBAR filing requirements are severe. Civil penalties for a non-wilful violation can range up to USD10,000 per violation. Civil penalties for a wilful violation can range up to the greater of USD100,000, or 50% of the amount in the account at the time of the violation.

Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a USD500,000 fine or 10 years imprisonment, or both. Civil and criminal penalties may be imposed together.

If a holder of a foreign account was required to file FBARs for earlier years, however, he or she should file the delinquent FBAR reports and attach a statement explaining why the reports are being filed late.

No penalty will be assessed if IRS determines that the late filings were due to reasonable cause.

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