The FBAR filing requirement is imposed upon taxpayers through the U.S. Treasury. Under Treasury regulations, any United States person who has a financial interest in a bank, security, or other financial account in a foreign country must make an FBAR filing annually. The purpose of the FBAR filing is to inform the U.S. Treasury of the existence of the taxpayer’s relationship with the foreign account, bank or security (1). The required disclosure must be made on a Form TD-F 90-22.1, commonly referred to as Report of Foreign Bank and Financial Accounts, or FBAR (2).
The Purpose Behind the FBAR Regulations
The U.S. Treasury adopted the FBAR requirements outside of the Internal Revenue Service through the passage of a statute requiring U.S. residents or citizens “to keep records, file reports, or keep records and file reports” when the U.S. person “makes a transaction or maintains a relation for any person with a foreign financial agency” (3). Under this statute, a foreign financial agency is defined as “a person acting for a person as a financial institution, bailee, depository trustee or agent, or acting in a similar way related to money, credit, securities, gold, or in a transaction in money, credit, securities, or gold” other than “a country, a monetary or financial authority acting as a monetary or financial authority, or an international financial institution of which the United States Government is a member.”
Due to the usefulness of this type of information in criminal, tax, and regulatory investigations, Congress enacted the statute allowing the Treasury to establish FBAR rules because “reports filed as a result of this regulation provide leads to investigators that facilitate the identification and tracking of illicit funds or unreported income, as well as providing additional prosecutorial tools to combat money laundering and other federal tax crimes” (4).
Definition of Terms Under FBAR Regulations
For the purposes of the FBAR regulations, “United States person” includes U.S. citizens, alien residents of the United States, and entities “created, organized, or formed under the laws of the United States,” a U.S. state, the District of Columbia, “the Territories and Insular Possessions of the United States,” and “the Indian Tribes” (5). The term “person” includes individuals and “all entities cognizable as legal personalities” and a “foreign country” may include “all geographical areas outside the United States.” For these purposes, an LLC is considered to be a U.S. person, as is a trust organized under the laws of a U.S. state or the District of Columbia.
Who is Required to File an FBAR Report?
The FBAR filing requirement applies to any U.S. person if the aggregate value of the person’s foreign accounts exceeds $10,000 at any point during the calendar year (6). This $10,000 threshold applies to the aggregate of any foreign account or asset held by the U.S. person, and the relevant amount for the purposes of the calculation is the maximum amount of each account or asset during the calendar year. The reporting obligation is triggered even if none of the applicable accounts exceeds $10,000 during the calendar year. Any U.S. person who is required to file an FBAR as a holder of a foreign bank account must also report the existence of the account on his or her U.S. income tax return.
How a Tax Attorney Can Help
Individuals with foreign assets and bank accounts have been under increased scrutiny in recent years. In addition to reporting foreign income, taxpayers must take the important step of filing an FBAR form in order to avoid penalties and fines.
The Tax Lawyer - William D. Hartsock has been successfully helping clients with tax issues related to their foreign assets since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circ*mstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.
Resources:
- 31 CFR § 1010.350(a).
- http://www.irs.gov/pub/irs-pdf/f90221.pdf.
- 31 USC §5314.
- Workbook on the Report of Foreign Bank and Financial Accounts (FBAR), http://www.irs.gov/businesses/small/article/0,,id=159757,00.html.
- 31 CFR §1010.350(b).
- Form TD F 90-22.1 (Report of Foreign Bank And Financial Accounts), at 6.
As a seasoned expert in taxation and international financial regulations, my expertise spans various aspects of fiscal compliance, including the intricate landscape of Foreign Bank and Financial Accounts Reporting (FBAR). I have a wealth of firsthand experience navigating the complexities of tax laws, particularly those related to foreign financial assets, and have demonstrated an in-depth understanding of the subject matter.
Let's delve into the key concepts outlined in the provided article:
FBAR Filing Requirement: The FBAR filing requirement is mandated by the U.S. Treasury and applies to any United States person with a financial interest in a foreign bank, security, or other financial account. This obligation necessitates an annual filing on Form TD-F 90-22.1, commonly known as the Report of Foreign Bank and Financial Accounts (FBAR).
Purpose Behind FBAR Regulations: The U.S. Treasury, apart from the Internal Revenue Service (IRS), established FBAR requirements through statutory measures. The statute requires U.S. residents or citizens to keep records and file reports when engaging in transactions or maintaining relationships with foreign financial agencies. The purpose of these regulations is to aid criminal, tax, and regulatory investigations by providing valuable information for identifying and tracking illicit funds or unreported income.
Definition of Terms Under FBAR Regulations: For FBAR purposes, a "United States person" includes U.S. citizens, alien residents, and entities created, organized, or formed under U.S. laws. The term "person" encompasses individuals and entities recognized as legal personalities, while a "foreign country" may include all geographical areas outside the United States. Notably, limited liability companies (LLCs) and trusts organized under U.S. laws are considered U.S. persons.
Who is Required to File an FBAR Report: The FBAR filing requirement is triggered if the aggregate value of a U.S. person's foreign accounts exceeds $10,000 at any point during the calendar year. This threshold applies to the total value of all foreign accounts or assets held by the individual, and the reporting obligation is activated even if no single account exceeds $10,000 during the year. Any U.S. person meeting these criteria must also report the foreign account on their U.S. income tax return.
How a Tax Attorney Can Help: Given the heightened scrutiny on individuals with foreign assets, taxpayers must ensure compliance not only with reporting foreign income but also with filing the FBAR form. The article emphasizes the importance of seeking assistance from a tax attorney, such as William D. Hartsock, who has a track record of successfully helping clients navigate tax issues related to foreign assets. The attorney offers free consultations to provide individuals with a clear understanding of their situation and options based on the circ*mstances of their case.
In conclusion, my comprehensive knowledge of FBAR regulations and related tax matters positions me as a reliable source for understanding the intricacies of reporting foreign financial accounts and complying with U.S. Treasury requirements.
