FBAR and Financial Disclosure Forms
Our preparation and review services for FBAR and financial disclosure forms include:
- Controlled Foreign Corporations
- Foreign Partnerships
- Foreign Situs Trusts
This webpage provides an overview of our foreign financial disclosure services.
(1) Who Is Required to Disclose Foreign Financial Assets and Foreign Financial Activity?
The following classes of taxpayers are required to disclose foreign financial assets and foreign financial activity:
- United States citizens
- Green Card Holders
- United States residents that are present in the United States for 183 days or more based on the IRS weighted average. For details, see H1-B Visa Holders and Other Foreign Nationals.
(2) Bank Secrecy Act Disclosures (FBARs)
The above-listed taxpayers are required to report their ownership or signature authority over foreign financial accounts using FinCEN Form 114 (the FBAR) in which the assets of the account exceed $10,000. Starting with the 2017 filing season, the form is due at the same time an individual tax return is due, which is April 18, 2017 for 2016 returns. However, it is filed with the Financial Crimes Enforcement Network (FinCEN), not the IRS. FinCEN is providing an automatic extension for all filers of the form until October 16, 2017.
The disclosure is due even if the taxpayer has signature authority, but not ownership of the financial account. Non-compliance with the FBAR disclosure requirements can lead to significant penalties even if the non-filing was unintentional or non-willful. In the case of non-willful violations, taxpayers may be subject to a civil penalty not to exceed $10,000 per violation. Penalties for willful violations are more severe and may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation. In some cases, criminal penalties may also be pursued.
(3) Income Tax Disclosure of Financial Activities of Foreign Businesses (Form 5271, etc.)
The above-listed taxpayers are required to report the results of economic activity from controlled foreign corporations and foreign partnerships. The forms are: Form 5471 (controlled foreign corporations) and Form 8865 (certain foreign partnerships). Penalties for the failure to file appropriate disclosure forms begin at $10,000 per year, per form.
(4) Income Tax Disclosure of Trustees of Foreign Trusts
The above-listed taxpayers are required to report transfers to foreign trusts or the ownership of a beneficial interest in a foreign situs grantor trust. Forms 3520 and 3520-A.
(5) Distributions From Foreign Nationals and Foreign Estates
The above-listed taxpayers are required to report transfers of a foreign person or a foreign estate (Form 3520, Line 54).
(6) Curing Non-Compliance with Foreign Financial Disclosures
Under the 2014 Streamlined Procedures, it is possible to cure the non-filing of FBARs and income tax disclosure forms (such as Form 5471) without penalties by simply filing the tardy forms along with an appropriate explanation. The facts and circumstances of each case must be carefully considered and reasonable cause must exist.
We have helped many clients come into compliance, in some cases without any penalties. In one case, we determined that the client had only signature authority over certain foreign financial accounts that belonged to a third party. We further determined that since our client was not the owner of the account, she had no obligation to report the income on her individual United States income tax returns. Thus, she could take advantage of the program whereby she filed delinquent FBARs along with an explanation. She avoided all penalties. Moreover, the foreign bank involved paid a significant portion of her legal fees, which we remitted, in full, to her.