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Monday, May 6, 2013

Report of Foreign Bank and Financial Accounts Impending Filing Deadline


The purpose of this tax article is to draw your attention to a potential filing requirement with respect to Form TD F 90-22.1, “Report of Foreign Bank and Financial Accounts” (“FBAR”), which must be filed by June 30, 2013. As this is an informational report and not directly connected to income taxes, your service provider would not generally prepare this form as part of the tax return preparation. Nevertheless, Armanino would like to inform you of this important filing obligation that may apply to you.

What are the risks for not filing on time?
There are significant civil and criminal penalties that may apply for non-compliance, including a late filing penalty of $10,000 per form. The Treasury Department is very focused on FBAR compliance and will generally not abate assessed penalties, except in extraordinary circumstances.

Who must file?
If you own, have beneficial ownership in or have signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund or other type of financial account, including a foreign trust, you may be required to report the account annually to the Department of the Treasury.

Under the Bank Secrecy Act, each U.S. person, individual or entity must file the FBAR if:

  • The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country, and;
  • The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Please note, a company may have beneficial ownership, signatory or other authority over a foreign account by virtue of having a foreign subsidiary with a local bank account. Additionally, the reporting requirements extend to officers and employees of a U.S. corporation which have supervisory control of a foreign subsidiary whereby there position has signatory or other authority over a foreign financial account.

There is no requirement that an officer, employee or parent corporation have an actual financial interest in the foreign financial account for the reporting rules to apply. Additionally, an officer or employee of the U.S. parent corporation may have a reporting requirement even in instances where the U.S. Parent has separately filed a FBAR report.

Example 1: The foreign bank account is owned by F. Richard, a U.S. citizen and an employee of F, has signature authority over the account. John, CFO, U.S. citizen, and employee of X, also has signature authority over the account. Neither Richard nor John has a financial interest in the foreign financial account. Richard and John would both be required to file an FBAR.

Example 2: Tom, a procurement manager and U.S. citizen employed by X, transferred to and became an employee of C to oversee foreign product procurement. Tom was given signing authority over C’s non-U.S. bank accounts. In addition, John, CFO of X and a U.S. employee, and Sharon, a Chinese national and employee of C, also have signature authority over C’s foreign accounts. Both Tom and John are required to file an FBAR regarding accounts owned by C. Sharon, who is not considered a U.S. person, is not required to file an FBAR.

A U.S. person is not prohibited from owning foreign accounts, but civil and criminal penalties may apply for failures to properly file FBARs when required. The information reported on an FBAR may be used for governmental purposes, including law enforcement and tax compliance purposes.

Additionally, a U.S. person must report gifts from a non-U.S. person in excess of $100,000. Any gifts in excess of $14,723 from a non-U.S. partnership, company or certain related person must also be reported.

When to file?
The Treasury Department must receive the FBAR on or before June 30. Unlike tax returns, the FBAR is considered filed on the day it is received by the Treasury Department. Postmarks are not considered evidence of timely filing. Allow ample time for your service provider to collect the required information, and to prepare and file the FBAR reports.

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