Tax News E-Alert

Volume 2, Issue 4, June, 2009

Foreign Bank and Financial Account Information Needs To Be Filed by June 30, 2009

An increasing number of  U.S. residents and businesses are required to file a Report of Foreign Bank and Financial Accounts (TD F 90-22.1) with the U.S. Department of Treasury. Many overlook this filing requirement, which may result in civil penalties, criminal penalties, or both.

The  TD F 90-22.1 report (often referred to as "FBAR") is filed by each United States person that has a financial interest in, or signature authority or other authority over, a bank, securities or other financial accounts, in a foreign country, and the aggregate value of these accounts exceeds $10,000 any time during a calendar year.

During the fall of 2008, the Internal Revenue Service issued a revised version of FBAR, which should be used for any reports filed after December 31, 2008.  The latest instructions for the report contain expanded definitions for a financial account, an account in a foreign country, and a financial interest held by a trust.  For example, the definition for a financial account now includes mutual funds and debit card and prepaid credit card accounts.   

The definition for "United States person" also changed on the revised form, but the IRS recently announced that filers of the reports due on June 30th of this year may rely on the definition contained in the prior instructions.  Accordingly, the term "United States person" means a citizen or resident of the U.S., a domestic partnership, a domestic corporation, or a domestic estate or trust.  Following are examples of United States persons that may have FBAR filing requirements:

•       An individual or entity with foreign investments.

•       An individual or entity with foreign business activities and transactions.

•       An owner or officer of an entity with foreign financial interests.

•       A U.S. parent of a foreign subsidiary.

•       A U.S. branch or subsidiary of a foreign entity.

•       An individual or entity that has set up foreign entities or accounts for tax avoidance and/or asset protection purposes.

•       An individual who has signing authority over a relative's foreign account.

•       An individual who has foreign financial interests received by gift or inheritance.

•       A beneficiary of a trust with foreign financial assets.

The information on the report may be used by any agency of the federal government such as the IRS, customs, FBI, DEA, etc.

Signature authority includes the ability to control the disposition of money or property in the foreign account by oral or written instructions to the signatory or titleholder on the account.

What Information Is Required?

FBAR requires taxpayer identification information (name, address, TIN, etc.) and the number of foreign financial accounts. The following information may also be required for each financial account: the maximum value of the account during the year; the type of account; the name and address of the financial institution; the account number; the country where the account is located; and the name of the organization (corporation, partnership, trust or estate), if applicable.  

When Is It Due?

This report is due on or before June 30th of the year following the calendar year of the taxpayer and must be filed on or before that date even if the taxpayer has an extension to file their tax return at a later date.

Recordkeeping Requirements

If a report is required, records must be kept that contain the name in which each foreign account is maintained, the account number, the name and address of the financial institution, the type of account, and the maximum value of each account during the reporting period.  The records must be retained for five years.

Penalties for Failing to File the Form TD F 90-22.1

Civil penalties for a non-willful violation of the FBAR requirements can range up to $10,000, although a penalty may be waived if the income from the account was properly reported on the income tax return and there was reasonable cause for the failure to report.  Civil penalties for a willful violation can range up to the greater of $100,000 or 50% of the amount in the account.  Criminal penalties can range up to a $500,000 fine and imprisonment of not more than ten years.

Where Should It Be Filed?

The report should be sent to the U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI  48232-0621.  It is not to be filed with the filer's income tax return.

Please feel free to contact me at 310-697-1501 or rwelling@rwac.com if you have any questions or need assistance preparing form TD F 90-22.1

Best regards,

Richard Welling

Richard Welling & Co., LLP

3625 Del Amo Blvd., Suite 290

Torrance, CA 90503

(310) 697-1500

www.rwac.com

This publication is designed to provide accurate and authoritative information and is distributed with the understanding that legal, tax, accounting, and financial planning issues have been checked with resources believed to be reliable. Some material may be affected by changes in law or in the interpretation of such laws. Do not use the information in this article in place of personalized professional assistance. If you need to discuss any issues found in this article, give us a call. Copyright 2008