What You Should Know About Your Foreign AccountsJanuary 21, 2015
With the May 19, 2014 announcement that Credit Suisse Group AG entered into a $2.6 billion settlement with U.S. authorities over allegations that it helped wealthy American clients evade taxes, and the continuing U.S. Treasury Department with IRS oversight of taxpayers and foreign accounts, we thought a reminder of the key elements of foreign bank account reporting ("FBAR") would be a good idea.
Bank Secrecy Act
The Bank Secrecy Act requires each United States person with a financial interest in, or signature authority over, any financial accounts in a foreign country, including bank, securities or other types of financial accounts, with an aggregate value of more than $10,000 at any time during the calendar year, in a foreign country to report that relationship by filing an FBAR (or FinCEN Form 114). The term "United States person" means a citizen or resident of the United States, a domestic partnership, a domestic corporation, or a domestic estate or trust.
The FBAR must be received by the US Treasury Department on or before June 30 of the year following the calendar year being reported. The FBAR is not filed with the taxpayer's federal income tax return and it should not be filed with the IRS. Instead, it must be delivered electronically to the U.S. Treasury Department through the Financial Crimes Enforcement Network (FinCEN).
Effective July 1, 2013, the FinCEN mandates electronic filing (e-filing) of the FBAR on Form 114, Report of Foreign Bank and Financial Accounts. Under a streamlined process for e-filing the FBAR, individuals are not required to register and create an account on the BSA E-Filing System Page (http://bsaefiling.fincen.treas.gov/main.html) prior to downloading, completing, and submitting the report. However, businesses must register and create an account as an institution on the BSA E-Filing System prior to submitting FBAR(s) on behalf of their business or clients.
Signature or other authority
One frequently asked question is what is "signature or other authority." The Treasury Department explained in the final rules that signature or other authority means the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained. The Treasury Department further explained that the test for determining whether an individual has signature or other authority over an account is whether the foreign financial institution will act upon a direct communication from that individual regarding the disposition of assets in that account.
Generally, the Treasury Department has defined the term "bank account" to mean a savings deposit, demand deposit, checking, or any other account maintained with a person engaged in the business of banking. The term ''securities account'' means an account with a person engaged in the business of buying, selling, holding or trading stock or other securities. The term "other financial account" means (i) an account with a person that is in the business of accepting deposits as a financial agency; (ii) an account that is an insurance or annuity policy with a cash value; (iii) an account with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or (iv) an account with a mutual fund or similar pooled fund or other investment fund.
Of course, there are exceptions. The exceptions include accounts in institutions known as United States banking facilities and also correspondent accounts maintained by banks that are used solely for bank-to-bank settlements.
If you have any questions about the FBAR or foreign account reporting, please contact our office.
Written by David Grossman