The United States Department of Treasury expects those who have a foreign account with a combined value at or above $10,000 at any point in the tax year to file a Report of Foreign Bank and Financial Accounts (FBAR) by April 15.
This tax form is different from traditional income tax forms in many ways. Some notable examples include:
- The reported amount. Instead of reporting the value of the asset at the end of the tax year the FBAR includes the maximum value of the asset at any time during the tax year. This means if it spikes in value for as little as part of one day that inflated number is the one that the US government will likely expect the taxpayer to report on the FBAR.
- The method of filing. Taxpayers generally cannot use traditional tax filing software to complete the FBAR. Instead, the taxpayer must file the FBAR separately and electronically.
- The accounts. The FBAR applies to more than just foreign bank accounts. The US government also expects this filing for trusts and brokerage accounts.
Those who are not sure about the need to file an FBAR for an account or asset and are hopeful that ignorance is bliss may be in for a rude awakening. The government does not take a failure to file lightly. It will aggressively investigate those it believes are attempting to avoid their tax obligations. If the feds can build a successful case that a taxpayer intentionally failed to file an FBAR that taxpayer can face serious allegations of fraud. Allegations that can include financial penalties and potential imprisonment.
The penalties are aggressive to help better ensure compliance. Do not take the matter lightly. If you believe you should file, reach out to legal counsel experienced in this niche area of tax law for guidance. If you are notified of an investigation into allegations of a failure to file, take action to build a defense and mitigate the risk of these serious penalties.