For those with foreign accounts, it is important to consult with a seasoned FBAR lawyers in Hanover, MD to understand the ever-changing compliance requirements relating to FBARs and associated filings. The professionals at Crepeau Mourges have extensive experience in these areas and have helped hundreds of clients to plan for future obligations related to foreign accounts and assets and to minimize the impact of past related missteps.
What is an FBAR?
FBAR is an acronym for Foreign Bank Account Report (or Report of Foreign Bank and Financial Accounts). This report has been around for decades and in recent years was converted from Form TD F 90-22.1 to FinCEN Form 114. The form is required to be filed by any U.S. person who owned, controlled, or had signatory authority over foreign financial accounts that aggregated to over $10,000 in value in a year. For instance, if a U.S. citizen or green card holder maintained a personal checking account in Canada and also maintained signature authority over their mother’s checking account in Canada, and each contained more than $5,000 at some point in the year, an FBAR filing would be required. As a result, the coverage of the FBAR reporting requirements is quite broad.
Importantly, an FBAR may be required to be filed even if there is no income or tax associated with the account. The filing is informational in nature. With that said, even though no tax is associated with an FBAR, the penalties for failing to timely report foreign financial assets can be substantial. For instance, a willful failure to file can result in penalties applied at the greater of over $100,000 per account or 50% of the value of the unreported account for each violation within the statute of limitations (up to 6 years). Potential criminal penalties – of up to five years per violation – also attach to willful violations of this requirement. Even for non-willful violations, the failure to file an FBAR can result in a penalty of $10,000 per account per year. With such high stakes, the importance of hiring an advisor that is well-versed in FBARs and related reports, such as the professionals at Crepeau Mourges, cannot be understated. Our lawyers and CPAs understand the reporting requirements, the different standards of proof and defenses for potential violations, and the procedural nuances related to addressing compliance issues.
What is FATCA?
Another frequently used acronym in the foreign tax and reporting area, FATCA stands for Foreign Account Tax Compliance Act. FATCA was enacted in 2010 as part of the HIRE Act and, among other things, imposes reporting requirements on foreign financial institutions and other non-financial foreign entities. Of note, FATCA mandates that these entities report on foreign assets held by U.S. persons. If those individuals do not provide necessary information, FATCA imposes costly withholding requirements.
While much of FATCA relates to the obligations of financial institutions and disclosures made by those institutions to regulatory authorities, FATCA also requires individuals and businesses to make separate reports. Importantly, FATCA requires many individuals to report foreign financial assets on an attachment to their income tax return – the Form 8938 (Statement of Specified Foreign Financial Assets). While much of the information reported on the Form 8938 is duplicative of the information reported on FBAR, it is important for taxpayers with foreign accounts and assets to understand these requirements. Failure to report required on a Form 8938 – even if the FBAR is filed – can result in substantial monetary penalties and can result in the statute of limitations on assessment of income taxes being extended. And while the definitional components of a Form 8938 are similar to those for FBARs (e.g., what is a reportable foreign financial account?), there are many key differences that a Hanover, MD FBAR lawyer versed with FBAR requirements and international tax filings can describe to a taxpayer.
Aside from the requirement to file a Form 8938, FATCA also imposed many additional international information return reporting requirements that relate to earlier IRS forms (e.g., Form 5471, Form 3520, and others). The skilled advisors at Crepeau Mourges can explain the regulatory framework, the different requirements applicable to your situation, help you to properly report your financial accounts and assets, and help you to avoid the headaches and penalties that can result from missteps.
Are There Other Foreign Reporting Requirements? And Why Should I Care?
While the requirements to file FBARs and a Form 8938 may seem tedious, there are many other filing requirements that can – and frequently are – triggered by the ownership or control of foreign assets. These forms include the Form 5471 (to report certain foreign corporations), Form 8865 (for certain foreign partnerships), Form 3520 (for certain foreign trusts and certain large foreign gifts and bequests), Form 8621 (for Passive Foreign Investment Companies), and others. Other recent changes to the tax code, which came into effect in the last few years, require U.S. persons to pay deemed tax on international holdings. The required tax reporting has grown, and will continue to grow, as the ability to conduct business abroad grows.
Taxpayers with foreign assets and related filing requirements need to be concerned. The issue is not going away, and neither is the Internal Revenue Service. As the federal deficit continues to grow, legislators are continually looking for ways to close the gap. Sophisticated, or seemingly sophisticated, taxpayers with international businesses are a preferred target. In recent years, the Internal Revenue Service and Department of Justice have engaged in targeted enforcement actions to increase compliance related to FBARs and other regulatory filings. Through the Swiss Bank Program, the Offshore Voluntary Disclosure Program, Streamlined Filing Procedures, and various criminal prosecutions, the federal government has collected billions of dollars in revenue and has attempted to show taxpayers of the need for compliance. As the availability of those programs slows and as many taxpayers have already availed themselves of the benefits, those with lingering compliance issues are on the enforcement radar and are not likely to be given as much grace as those that proactively addressed noncompliance.
Given that the penalties at the disposal of regulators is tremendous and continues to grow, the time to turn a blind eye to these situations has passed. Those targeted for civil audit or criminal investigation are likely to encounter stiff penalties. Do not continue to let this issue slide. Ignorance will only lead to further problems and penalties. If you have concerns regarding FBARs, foreign assets, or related reporting requirements, you should contact one of the advisors at Crepeau Mourges to discuss your exposure and your options for resolution.
After I Identify the Problem, How Do I Fix It?
Even with the options for resolution becoming fewer and fewer, taxpayers still have ways to limit the consequences of prior noncompliance and to ensure compliance going forward. A lawyer knowledgeable in FBARs and other foreign financial reporting can, and must, ensure that you meet your future reporting obligations. A lawyer familiar with FBARs and other reporting requirements can also identify what, if any, errors or violations may have been committed in the past. After any issues have been identified, an advisor can frame and explain the options for resolution. At Crepeau Mourges, we work with clients to find a resolution that addresses the circumstances of their case and considers the many financial and non-financial costs and benefits.
Since the Offshore Voluntary Disclosure Program is no longer available, Crepeau Mourges explains the availability of the longstanding Voluntary Disclosure Practice of the Internal Revenue Service to those with criminal exposure. For other taxpayers, we may advocate for resolution of non-willful noncompliance through the Streamlined Filing Compliance Procedures, the Delinquent FBAR Submission Procedures, or the Delinquent International Information Return Submission Procedures. And for others, we may advise for resolution through some other means, such as a quiet disclosure or simply to address compliance on a going-forward basis. Likewise, if a taxpayer has been selected for civil audit or criminal investigation and proactive measures are unavailable, the professionals at Crepeau Mourges are similarly ready, willing and able to protect and defend their interests and minimize the legal and financial consequences.
If you own or control any foreign accounts or assets, you should consult with a FBAR lawyer in Hanover, MD knowledgeable in FBAR requirements and other required tax reporting. Failure to identify these requirements or to inappropriately remedy noncompliance can have severe civil and criminal consequences. Contact the professionals at Crepeau Mourges today and put our experience, focus, and reputation in this area to work for you.