Foreign Bank and Financial Accounts

This correspondence is written to remind everyone the importance of reporting foreign assets and foreign bank accounts. There are two different forms that might be necessary to file reporting these bank accounts or assets. There is the Foreign Bank and Financial Accounts (FinCen Form 114) typically referred to as FBAR and the Foreign Account Tax Compliance Act commonly referred to as FATCA (Form 8938, Statement of Specified Foreign Financial Assets). Just because a taxpayer files one form does not mean that there is not a requirement to file the other form. Both forms may be required. The non-filing penalties are severe and bordering on outrageous if the non-filing is deemed willful.

We will discuss the FBAR civil penalty although criminal charges may also be made against a taxpayer. The non-willful violation is $10,000 per violation, adjusted for inflation ($12,459). Observe that this is for each violation; therefore, each year of non-filing may be assessed as a separate violation.

The penalty for willful violation is even more severe. The maximum inflation adjusted penalty for each violation involving the failure to report the existence of an account is the greater of the following:

  1. $124,588 (inflation adjusted), or
  2. 50% of the balance in the account.

A person who does not own the account but has signature authority over the account may also be required to file. The penalties for failure to file a FATCA report are also significant.

A school teacher during December of 2018 learned of the severity of those penalties when the Court of Federal Claims ruled that the $803,530 penalty assessed by the IRS for willful failure to file FBAR was appropriate.

Be absolutely sure you notify your tax preparer of foreign accounts and assets. Positively identify and discuss these items with your tax preparer. Do not just include a document identifying the account or asset with your other tax documents as this may cause the information to be overlooked. The consequences are too large to overlook this obligation.