Under U.S. law, a “U.S. person” is required to file annually an FBAR reporting his or her ownership of or signature authority over certain “foreign financial accounts.” In general, FBAR reporting is required if the maximum aggregate value of the U.S. person’s foreign financial account(s) exceeded $10,000 at any time during the calendar year. FBARs must be e-filed on FinCEN Form 114 (formerly Form TDF 90-22.1) with the FinCEN.
The FBAR filing requirement is not part of filing a tax return. The FBAR Form 114 is filed separately and directly with FinCEN. FBAR filings have surged in recent years, according to data from FinCEN. FBAR filings exceeded 1 million for the first time in calendar year 2014 and rose nine of the last 10 years from about 280,000 back in 2005.
Civil penalties for failing to properly file an FBAR range from up to $10,000 per unreported account for nonwillful violations, to the greater of $100,000 or 50% of the account balance per year for a “willful” failure to properly report a foreign account. Willfulness is generally defined as the intentional violation of a known legal duty. Nonwillful conduct is attributable to negligence, inadvertence, or mistake or conduct that is the result of a good-faith misunderstanding of the requirements of the law.
The IRS may waive penalties if the failure to file was due to reasonable cause. On the other hand, willful reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.
U.S. persons with unreported foreign bank accounts are increasingly at risk of the IRS and the US Department of Justice identifying those accounts due to the implementation of the Foreign Account Tax Compliance Act. FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any U.S. account holders or U.S. beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.