U.S. citizens and residents have an annual obligation to report the existence of all “foreign bank, securities or ‘other’ financial accounts” if the aggregate value of those accounts exceeded US$10,000 at any time during the preceding year. Those failing to do so face a fine up to US$250,000, imprisonment up to five years, or both.
Lucky you: if you can demonstrate you didn't "willfully" violate this requirement, the IRS will generally impose a civil fine of "only" US$10,000.
Now, the U.S. Treasury has extended this obligation to any foreign person "in or doing business" in the United States. If you qualify under this requirement, you have until June 30 to report any "foreign accounts" you had in 2008 by completing complete Form TD F 90-22.1, the foreign bank account reporting form (FBAR).
You don't want to bare your financial soul to the U.S. Treasury? Well, too bad. If you're "conducting business within the United States on a regular and continuous basis," you meet the threshold test established by the IRS, and must complete the FBAR. You must reveal the name, address, account number, and highest value in the preceding year of each non-U.S. account over which you have signature or "other" authority.
According to recent IRS guidance, a foreign person merely visiting the United States has no filing obligation. Nor does sporadically doing business in the United States trigger the requirement. Other foreigners not required to file FBARs include:
- Persons who occasionally visit the United States to meet customers or business associates
- Artists, athletes, and entertainers who occasionally come to the United States to participate in exhibits, sporting events, or performances
- Persons who occasionally visit the United States to manage personal investments, such as rental property, and conduct no other business
Filing a FBAR creates no tax obligation. Nor does it appear that foreign persons who file FBARs have the additional responsibility of completing boxes 7a and 7b on Schedule B of IRS Form 1040—a U.S. taxpayer's annual tax return. Thank goodness for small favors!
However, even if you're a foreigner with no U.S. tax obligations, there's a major potential downside to filing the FBAR: the Treasury can share the information on it with just about anyone. Generally, the IRS can't disclose tax returns or return information outside the U.S. Treasury, except under strict conditions. However, the FBAR isn't a tax return and may be disclosed on a much wider basis. According to the FBAR instructions:
"The information collected may be provided to those officers and employees of any constituent unit of the Department of the Treasury who have a need for the records in the performance of their duties. The records may be referred to any other department or agency of the United States upon the request of the head of such department or agency for use in a criminal, tax, or regulatory investigation or proceeding. The information collected may also be provided to appropriate state, local, and foreign law enforcement and regulatory personnel in the performance of their official duties."
In other words, data you disclose on this form might just make it back to your home country, to be used in an investigation against you. And of course, in many countries, government corruption is rife. It's possible the FBAR form might also be shared with organized crime syndicates involved in kidnapping or other illegal activities. These groups might be very interested to learn the details of your foreign accounts, along with the balances you keep in them.
At the very least, the Treasury's new demand for persons "in or doing business in the United States" to file the FBAR annually raises troubling questions as to what it might do with the data it collects. At most, it might give such persons second thoughts as to whether they wish to continue to be "in or doing business" in the United States.
Copyright © 2009 by Mark Nestmann
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