FBAR Filing Deadline Nears for U.S. Taxpayers in Southern California and Elsewhere

United States taxpayers who hold an ownership interest in or signature authority over a foreign financial account with an aggregate balance of at least $10,000 at any point during the year must file a Report of Foreign Bank and Financial Accounts (“FBAR”) by June 30. Although taxpayers are required to file the FBAR form electronically, the information may be completed online or uploaded to the Financial Crimes Enforcement Network’s website using a recently released form. Individuals with questions about their offshore asset values may utilize the U.S. government’s published exchange rate.

In addition to the FBAR, offshore account disclosures must be made on Schedule B of an American taxpayer’s Form 1040 and Internal Revenue Service Form 8938 if certain foreign asset reporting thresholds are met. Such disclosures must typically be made by April 15th each year. Since 2010, the Foreign Account Tax Compliance Act (“FATCA”) mandates that individuals residing in the U.S. with an overseas account balance of $50,000 and married couples with a balance of at least $100,000 on the last day of the year, or respective balances of $75,000 and $150,000 at any time throughout the tax year, file Form 8938. FATCA reporting thresholds are higher for American taxpayers who reside in another nation.

Foreign assets subject to FATCA reporting requirements include not only bank accounts but also shares of offshore companies, partnership interests, and hedge funds. It is important to note that dual citizens and individuals who have a second passport may not bypass the reporting requirements imposed by FATCA. Instead, such attempts may be deemed willful behavior by the government.

Taxpayers who fail to comply with their offshore asset reporting requirements can face significant financial and criminal penalties. For example, a U.S. taxpayer who does not submit a timely FBAR may be charged the greater of $10,000 or 50 percent of the highest value of the undisclosed overseas asset. U.S. citizens and residents who previously did not disclose their offshore accounts to the government may be entitled to come into compliance with the tax code through the Offshore Voluntary Disclosure Program (“OVDP”).

Since 2009, the IRS has recovered over $6.5 billion in unpaid taxes from approximately 45,000 foreign financial account holders through the OVDP. Currently, the OVDP levies a 27.5 percent penalty on the highest account balance of each overseas financial asset that a U.S. taxpayer willfully chooses not to disclose on his or her federal income tax return. Despite this, an individual who fails to disclose financial assets maintained with an offshore banking institution that submits information to the IRS under FATCA will normally incur a steeper nondisclosure penalty under the OVDP. Since most foreign banking institutions now disclose such information to the U.S. government, it is important for American taxpayers to come into compliance with the tax code as soon as possible.

Certified tax law specialist William Hartsock has more than 30 years of experience helping San Diego clients with their international tax law issues. To discuss your situation with a diligent and hardworking tax lawyer today, call Mr. Hartsock at (858) 481-4844 or contact him online.

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