History
For obvious reasons the United States Treasury is interested in identifying individuals who have interests in foreign financial assets. In 1970 Congress enacted the Bank Secrecy Act which included requirements for filing an annual Foreign Bank and Financial Account (FBAR) report (originally known as Form TD F 90-22.1).  The Treasury Department created the Financial Crimes Enforcement Network (FinCEN) in 1990 and tasked it with FBAR enforcement authority. Your individual income tax return Schedule B has long included a question as to whether or not you “have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country” and a notification of the requirement to file the FBAR if the answer is yes.  In an attempt to increase compliance, in 2003, the Treasury turned over enforcement authority for the FBAR to the Internal Revenue Service which has the authority to assess and collect civil penalties.  This FBAR (now known as Form 114) must be e-filed annually by June 30 via the “BSA E-Filing System” completely separate from your income tax return filing.  The Hiring Incentives to Restore Employment Act of 2010 took the process one step further by creating a requirement that certain U.S. tax filers must attach a Form 8938 Statement of Specified Foreign Financial Assets to their annual income tax returns.  Although the two forms require much of the same information, they are both required if applicable.  Fortunately, neither form requires the reporting of real estate owned outright as an individual.  If you are interested in more information see below for a summary of specific filing requirements. You may also visit the IRS online at http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA for full details.

Form 114 Report of Foreign Bank and Financial Account

Who may have to file: US Citizens, resident aliens, trusts, estates, and domestic entities.

Reporting threshold: foreign account values that reach $10,000 any time during the tax year.

What constitutes an interest: individuals that have either a –

• Financial Interest – either the individual is the owner of record or holder of legal title; the owner of record or holder of legal title is their agent or representative; or they have a sufficient interest in the entity that is the owner of record or holder of legal title; or a
• Signature authority – the individual has authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.

Required disclosure: the name and address of the financial institution holding the reportable asset along with the account number and the maximum fair market value of the asset during the year.

Due date of report: the report must be received each year by June 30, without any opportunity for further extension, via e-filing through the FinCEN’s (Financial Crimes Enforcement Network) BSA (Bank Secrecy Act) E-Filing System. Most professional tax preparers tax software should include the ability to e-file these forms.

Penalty for failure to file: if non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of the foreign account balances; criminal penalties may also apply.

Form 8938 Statement of Specified Foreign Financial Assets

Who may have to file: US Citizens, resident aliens and certain non-resident aliens.

Reporting threshold: foreign asset values that reach $50,000 on the last day of the tax year or $75,000 any time during the tax year ($100,000 and $150,000 if married filing joint). For taxpayers living abroad, the thresholds are $400,000 on the last day of the year or $300,000 at any time during the year.

 What constitutes an interest: certain assets owned such that the resulting income, gain, loss, gross proceeds or distributions are or would be required to be reported on the individual’s income tax return.

Required disclosure: the name and address of the financial institution holding the reportable asset along with the account number and the maximum fair market value of the asset during the year.

Due date of report: by the due date, including extension, of the individual income tax return (as noted above, this form is attached to the tax return and is not required if no tax return is required).

Penalty for failure to file: up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after receipt of an IRS notice of failure to disclose up to a maximum of $60,000; criminal penalties may also apply.