While people are aware that they need to report income and assets to the Internal Revenue Service, many don't know that they also need to report certain foreign investments and accounts through a Report of Foreign Bank and Financial Accounts (FBAR) via FinCEN Form 114. So let's discuss who must file an FBAR and some of the consequences for failing to do so.

WHO MUST FILE AN FBAR

Any United States person—defined as a citizen, resident, corporation, partnership, limited liability company, trust, or estate—must file an FBAR if:

• They own or have signature authority over at least one financial account (e.g., bank accounts, brokerage accounts, and mutual funds) located in a bank outside of the U.S. and
• The accounts have an aggregate value of more than $10,000 at any point during a calendar year.

Spouses who share an interest in an account can submit a joint filing. Children are not exempt from the FBAR requirement, but a parent or legal guardian can submit the filing on their behalf.

There are also some exceptions to the FBAR requirement. For example, if the accounts are owned by a government entity, maintained on a US military base, or are part of an IRA you own or are a beneficiary, FBAR does not apply.

PENALTIES FOR FAILING TO FILE

There are both potential civil and criminal penalties for failing to file an FBAR. Negligent violations can result in a thousand dollar penalty, while civil penalties for a non-willful failure can be almost $13,000 per transaction. Willful failure to file or failure to retain required records can result in civil penalties of $100,000 or more, while criminal penalties can be up to $500,000 or a 10-year prison sentence.

EXPERIENCED TAX COUNSEL CAN HELP

If you are unsure about whether you need to file an FBAR, or you're concerned about past failure to file reports, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.