The Bank Secrecy Act (BSA) gave the Department of Treasury authority to collect information from United States persons who have financial interests in or signature authority over financial accounts maintained with financial institutions located outside of the United States. The BSA requires that a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) be filed if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year.
A United States person means a citizen, resident, corporation, partnership, limited liability company, trust or estate. Foreign financial accounts, include bank accounts, brokerage accounts and mutual funds. You report foreign financial accounts to the Treasury Department by filing a Report of Foreign Bank and Financial Accounts (FBAR).
Whether the account produced taxable income or not has no bearing whatsoever on the requirement to file.
What about IRAs, Tax-qualified Retirement Plans, and Trusts
An owner or beneficiary of an IRA is not required to report a foreign financial account held in the IRA. Also, participant in or beneficiary of a tax-qualified retirement plan described in Internal Revenue Code § 401(a), 403(a) or 403(b) is not required to report a foreign financial account held by or on behalf of the retirement plan.
A trust beneficiary with a direct or indirect financial interest in more than 50 percent of
the trust assets or income is not required to report the trust’s foreign financial accounts on an FBAR if the trust, trustee of the trust, or agent of the trust is a United States person; and files an FBAR disclosing the trust’s foreign financial accounts.
Failure to file a FBAR when required to do so may result in civil penalties, criminal penalties, or both. For example, a willful failure to file FBAR may carry a civil penalty of up to the greater of $124,588 (plus inflation adjustments from 2016), or 50 percent of the amount in the account at the time of the violation as well as possible criminal penalties of up to $250,000 or 5 years or both.
The FBAR is a calendar year report and must be received by the Department of Treasury on or before April 15 of the year following the calendar year being reported. You must file the FBAR electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. You don’t file the FBAR with your federal tax return.
Attorney Adler focuses his practice on estate planning, wills, trusts and estates. He can be reached at 212-843-4059 or 646-946-8327.