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August 30, 2018

When is a U.S. Taxpayer Required to File an FBAR to Report Signature Authority on a Foreign Account?

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    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists taxpayers with representation and tax examinations, tax audits, appeals, and civil litigations with the Internal Revenue Service and the Ohio Department of Taxation. As part of that representation, our tax attorneys routinely advise taxpayers on their U.S. reporting requirements relating to signature authority on foreign accounts. If a taxpayer has 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 threshold amounts, the taxpayer may be required to report the account annually by electronically filing a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (“FBAR”), as discussed further below.

    A U.S. person is required to file a FBAR if: (i) the person had a financial interest in or signature authority over at least one financial account located outside of the United States, and (ii) the aggregate value of all foreign financial accounts exceeded $10,000.00 at any time during the calendar year reported. To determine whether the taxpayer’s account exceeds the $10,000.00 threshold, the account’s balance must be over $10,000.00 at any time during the calendar year. For purposes of triggering an FBAR filing requirement, it does not matter what the ending balance or beginning balance is on a particular day or in a particular month. The threshold is met as long as the account balance goes over $10,000.00 at any point during the day, on any day during the year. As an example, let’s assume that a foreign account begins the day with a $0.00 balance. The foreign account receives deposits of over $15,000.00 during the day, but then $10,000.00 is immediately transferred out for purposes of paying expenses. As a result, the account’s end of day balance is $5,000.00. If a U.S. person has signature authority over that account, that U.S. person is required to file an FBAR relating to the foreign account since the balance was over $10,000.00 during the day, even though the day’s beginning and ending balances were under $10,000.00.

Consequences of Failing to File FBARs

    If you are a U.S. person and you meet the criteria for filing an FBAR, as detailed above, then you are required to file an FBAR electronically. Please note, the FBAR is not filed as part of your Form 1040 U.S. Individual Income Tax Return. But, the deadline for filing the FBAR does coincide with the federal income tax return filing deadlines. Thus, the due date for the 2017 FBAR was April 15, 2018. But, the IRS grants automatic six-month extensions to October 15th to provide taxpayers with ample time to file their FBARs. Further, taxpayers are not required to make a specific request for the six-month extension. Ultimately, it is very important that taxpayers with foreign accounts, or signature authority over foreign accounts, understand the FBAR filing requirements to ensure that they are compliant with U.S. tax laws. Otherwise, the penalties and consequences of failing to file an FBAR can be steep. And, the IRS may assess penalties for failing to file required FBARs, including criminal and civil penalties.

Conclusion

    We strongly encourage our clients to be compliant with any and all U.S. reporting requirements relating to their financial foreign accounts, even if they have not done so in the past. There are a few options for taxpayers: (i) to disclose offshore accounts, including offshore accounts where the taxpayer is simply a signature authority on the account, and (ii) to resolve any tax liabilities and penalties relating to the foreign accounts. Specifically, the IRS offers the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedure Program as ways for U.S. persons to become compliant with tax laws. But, it is important to note that the Offshore Voluntary Disclosure Program is ending September 28, 2018. Ultimately, if you have a financial interest in or signature authority over a financial account, we encourage you to contact Nardone Limited at 614-223-0123 to ensure that you are compliant with any and all U.S. reporting requirements.

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August 30, 2018

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