Offshore Voluntary Disclosure Program
Offshore Voluntary Disclosure Initiative
The IRS is assessing huge penalties for undisclosed foreign bank accounts, assets, and income.
Now called FinCEN form 114, an FBAR is a non-USA bank account report
The provisions commonly known as the Foreign Account Tax Compliance Act (FATCA) became law in March 2010.
FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts.
FATCA focuses on reporting:
By U.S. taxpayers about certain foreign financial accounts and offshore assets
By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Enforcement of FATCA has been on the rising and non-compliant individuals and businesses are at risk of paying huge penalties. Two particular components of FATCA have been causing American taxpayers trouble lately:
Our International Taxation Division is headed by a Certified Public Accountant(CPA) with a Masters in taxation. He worked with the IRS for 35 years as an IRS International Examiner, an IRS International Team Manager, and an IRS Appeals Officer.
Let our FATCA, FBAR and OVDI experts and consultants help you and your business today.
Our office can unlock the tax codes to help your business maximize the money it keeps and steer clear of the traps set by the IRS to audit and penalize multinational companies with operations and assets in the USA.
If your situation is more complex we also have the experience to provide expert witness testimony for international tax issues.
If you have 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, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.
Current FBAR Guidance
New Due Date for FBARs
The new annual due date for filing Reports of Foreign Bank and Financial Accounts (FBAR) for foreign financial accounts is April 15. This date change was mandated by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the “Act”). Specifically, section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the federal income tax filing season.
The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.
Please see the section entitled “Reporting and Filing Information” below for more information.
Filing deferral for certain individuals with signature authority only, effective through April 15, 2018
FinCEN Notice 2016-1 extended the due date for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity, to April 15, 2018.
Chronology Pertaining to This Filing Deferral
May 31, 2011 (rev. June 6, 2011)FinCEN Notice 2011-1 provides filing extension to June 30, 2012 extension for:
An employee or officer of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of a controlled person of the entity; or
An employee or officer of a controlled person of an entity under 31 CFR § 1010.350(f)(2)(i)-(v) who has signature or other authority over and no financial interest in a foreign financial account of the entity, the controlled person, or another controlled person of the entity.
For purposes of FinCEN Notice 2011-1, a controlled person is a United States or foreign entity more than 50 percent owned (directly or indirectly) by an entity under 31 CFR § 1010.350(f)(2)(i)-(v).
June 17, 2011FinCEN Notice 2011-2 extended due date for filing to June 30, 2012, for certain officers of employees of investment advisors registered with the Securities and Exchange Commission who have signature authority over, but no financial interest in, foreign financial accounts of their employer.February 14, 2012FinCEN Notice 2012-1 extended the deadline to file to June 30, 2013, for those persons identified in Notice 2011-1 and Notice 2011-2.December 26, 2012FinCEN Notice 2012-2 further extended the due date for filing to June 30, 2014.December 17, 2013FinCEN Notice 2013-1 further extended the due date for filing to June 30, 2015.November 24, 2014FinCEN Notice 2014-1 further extended the due date for filing to June 30, 2016.December 8, 2015FinCEN Notice 2015-1 further extended the due date for filing to April 15, 2017December 16, 2016FinCEN Notice 2016-1 further extended the due date for filing to April 15, 2018
Who Must File an FBAR
United States persons are required to file an FBAR if:
the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
Exceptions to the Reporting Requirement
Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:
Certain foreign financial accounts jointly owned by spouses
United States persons included in a consolidated FBAR
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.
Review the FBAR instructions for more information on the reporting requirement and on the exceptions to the reporting requirement.
Reporting and Filing Information
A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
The FBAR is a calendar year report and must be filed on or before April 15 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System.
The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. Prior to the passing of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, there was no provision for requesting an extension of time to file an FBAR. The Act mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.
Filers who submit FBARs jointly with spouses or who wish to have a third party preparer file their FBARs on their behalf can use FinCEN Report 114a, Record of Authorization to Electronically File FBARs. FinCEN Report 114a is not submitted when filing an FBAR but, instead, is kept in FBAR records maintained by the filer and the account owner, and must be made available to FinCEN or IRS upon request.
Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to civil monetary penalties. For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2,2015, the IRS may assess an inflation-adjusted civil penalty not to exceed $12,459 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the inflation-adjusted penalty may be the greater of $124,588 or 50 percent of the balance in the account at the time of the violation, for each violation. For guidance on circumstances, including natural disasters, that prevent timely filing of an FBAR, see FIN-2013-G002 (June 24, 2013).
Note regarding civil penalty assessment prior to August 1, 2016: For those violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.
U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement. A chart providing a comparison of Form 8938 and FBAR requirements may be accessed on the IRS Foreign Account Tax Compliance Act Web page.
Offshore Voluntary Disclosure Program
On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Programfollowing continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at any time.
Streamlined Filing Compliance Procedures
On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to non-resident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.
On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States; reference IR-2014-73. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue. For more information, go to Streamlined Filing Compliance Procedures.
Delinquent FBAR Submission Procedures
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
Some foreign countries that do not have intergovernmental agreements to uphold FACTA are still treated as if they do.
Read the Latest Update from the IRS here.