If the date June 30, 2009 doesn't mean anything to you, you're not alone. But if you're a U.S. taxpayer, or a foreigner foreign person "in or doing business" in the United States, June 30 is the deadline for filing a rather obscure form with the U.S. Treasury with the cryptic name "Form TD F 90-22.1" (link here to the form).
The "foreign bank account report" or FBAR requires you to disclose the details of all "financial accounts" you hold outside the United States, if their aggregate value exceeds US$10,000. You must file the form if you're a U.S. citizen, permanent resident, or conduct business on a regular and ongoing basis in the United States. Fail to file it, and you could face a negligence penalty of US$10,000. If you "willfully" fail to file the FBAR, you face a fine up to US$250,000, imprisonment up to five years, or both. Penalties are doubled if you violate any other U.S. law.
While you're at it, don't forget that you have a separate obligation to disclose any "reportable" foreign accounts on Schedule B of Form 1040. Hopefully you already made that acknowledgment when you filed your 2008 tax return. If not, you should file an amended return and make the required disclosure (check "yes" on line 7a of Schedule B).
Unfortunately, it's not always easy to figure out whether you need to file the FBAR or not. If you have financial interest in, or signature or other authority over foreign bank, securities or “other” financial accounts with an aggregate value exceeding US$10,000, you're supposed to file the form. (See IRS guidance here.)
Therefore, if you have a foreign bank account or securities account, it's clear you must file the form. But it's less clear whether you must disclose details of other offshore relationships.
Late last year, the Treasury Department issued a revised version of the FBAR, along with revised instructions. The instructions resolve some of the unanswered questions about reporting offshore accounts. For instance, they make it clear that you must report financial interests in foreign mutual funds, even if you hold them outside a bank. Hedge fund managers and other investment managers with control over offshore accounts must also file the form.
However, other questions remain unanswered. For instance:
- Are interests in offshore electronic gold accounts or offshore precious metals certificates reportable?
- Are offshore variable annuities or offshore life insurance policies reportable?
I've always recommended reporting these investments as "foreign accounts," although plenty of advisors disagree with me. But I'd rather be safe than sorry.
There's another complication as well. The IRS has unveiled a "voluntary compliance" program that offers reduced penalties for U.S. persons who disclose previously unreported offshore accounts before Sept. 23, 2009. To qualify, you must file the FBAR for past years when you should have, but didn't, file it.
If you're planning to go through this program, should you file the form before June 30? Some attorneys say you should. Others say don't do it, because doing so may red flag you for an audit and disqualify you for the voluntary compliance program. If you're considering this program, I recommend contacting a tax attorney immediately to seek professional advice on whether to file by June 30, or not.
Otherwise, while I realize the FBAR is a "tell all" form that you'd probably rather not file, my advice is to file it even in borderline situations. The consequences of NOT filing are severe, should you get caught.
Copyright © 2009 by Mark Nestmann
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