May 28, 2014
From the KPMG TaxWatch
Ben –I’m Ben Francis and I’m joined today by Steve Friedman.
Today we’re going to be talking about the FBAR – the Report of Foreign Bank and Financial Accounts. In particular, we’re going to be focusing on the upcoming filing deadline and how that applies to international assignees. So Steve, for anyone who’s new to the FBAR, what is this form and why do we need to be thinking about it right now?
Steve – Well, the FBAR is the annual report required of US persons—which would be US citizens, US residents, and domestic entities—to report their financial interest in, or signature or other authority over, foreign financial accounts when the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. And it’s particularly important right now because the deadline for filing the annual report is fast approaching, that being June 30th. And actually that FBAR report is particularly relevant, Ben, I believe, to the International Executive Services practice.
Ben – It certainly is. It’s relevant to both expats (meaning US citizens who have moved overseas and might have opened financial accounts in foreign countries) and also to inpats (meaning foreign citizens who have moved here to the US but have kept open their financial accounts in their home countries). We in the IES practice have a number of engagements where we prepare and submit the FBAR form, and we also advise certain clients on communicating the filing requirements to individuals where they have their own responsibility for filing the form.
So let’s focus on what is new for this filing season in 2014.
Steve – Well, what’s new with the FBAR is, it’s gone electric. So no longer can you paper-file an FBAR—everything has to be electronically filed. There’s a new FinCEN Form 114 for doing that, and there’s actually a new Form 114a in which you can authorize a third party to electronically file the FBAR for you.
Ben – Let’s get into some more detail about exactly what information has to be shown on the form and what triggers the reporting requirement.
Steve – Well, you have to report your foreign financial accounts, those that you have a financial interest in, and that would include such things as bank accounts, securities accounts, brokerage accounts, as well as foreign mutual funds. And as long as those accounts are located outside the United States, then you’d have to report them. Now, in addition to your financial interest in those accounts, if you are a US individual and you have authority over those foreign accounts—which would include something like your employer’s bank account—then you would also have to report it on the FBAR.
Ben – Okay. Let’s get into a little more detail about that term “authority” that you mentioned. What are the relevant definitions about what that term means and when it applies?
Steve – Well, someone has authority over a foreign account when they can gain access to that account—and that would either be through a loan or in conjunction with another person—and that’s gaining access through direct communication with the foreign financial institution. And that communication can either be as a signatory, or it could be in other means, such as electronically communicating with the foreign institution. Now bear in mind, that’s in contrast to having supervisory control over the account, which might be somebody who can direct others within the organization to move funds in and out of the foreign account. If you only have supervisory control, which means you cannot directly communicate and gain access, then you don’t have authority and would not have to report.
Ben – Okay, so there are two things that can trigger the FBAR filing requirement: one being having authority over, say, a corporate account, and another where an individual has their own personal foreign financial accounts. Given that those two requirements can coexist, does the individual have to file two forms? Can they file just one form? What are the rules around that?
Steve—Well, Ben, historically, you filed everything on one FBAR. But now that we’ve gone electric, you can actually e-file more than one FBAR. So you could authorize a third party to report just your corporate accounts when you have authority over those accounts, and then you could file a second FBAR to perhaps report your personal accounts that are required to be reported.
Ben – Let’s draw some contrasts between the FBAR filing requirements and the requirement to file Form 8938. Form 8938 is another form that requires disclosure of certain foreign financial assets, but there are differences between the 8938 and the FBAR in that the 8938 applies to a broader range of foreign financial assets, but at the same time the filing threshold is higher.
Another key difference is that the 8938 is filed with the individual’s Form 1040—in other words, it’s an integral part of the individual income tax return, and therefore it’s eligible for extensions. Somebody who might have applied for an extension until October 15 to file that Form 1040 might not yet have filed that Form 8938. So, given that those extensions are available for Form 8938, what’s the difference with the FBAR? Are any extensions available for filing the FBAR form?
Steve – Well, first let’s make sure everybody understands that having an extension on your 1040 has no bearing on your FBAR due date. In fact, there are no extensions for the FBAR.
But, having said that, Treasury has granted a limited extension to June 30 of 2015 for certain officers and employees of regulated entities, which would include financial institutions and US publicly traded companies, to report the corporate accounts that they have authority over. So that’s a limited extension just for those individuals.
But that’s only for their corporate accounts. To the extent they have personal accounts that also have to be reported on an FBAR, those would still have to be due June 30 of 2014. And, of course, meeting all the due dates is critical because persons can be subject to potentially significant penalties.
Ben—Well, the penalties certainly can be significant. They can be up to $10,000 for even a non-willful failure, and that’s a penalty that applies per account.
So if you have an FBAR filing requirement or you think you might have one, be sure to talk to your tax services provider and make sure you’re in compliance with those reporting requirements.
That concludes our discussion today. Thank you very much for watching.
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