Everybody knows that April 15 is an important tax deadline. But there is another tax deadline that is not so well-known: June 30.
This is the date by which all U.S. citizens must file a Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1) with the U.S. Internal Revenue Service to report offshore bank accounts.
That’s right: offshore bank accounts. In recent years the IRS has aggressively pursued taxpayers involved in abusive offshore transactions. Some taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts, or through the use of nominee entities (companies formed by banks or other organization to hold assets as a custodian on behalf of owners).
Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.
To help prevent such abuses, the filing requirement for foreign bank and financial accounts was created. The report, known as "FBAR," is used as a tool to help IRS and Treasury Department investigators trace funds used for illicit purposes and to identify unreported income maintained or generated abroad.
An annual FBAR must be filed with the IRS whenever a taxpayer has an interest in, or signature authority over, a foreign financial account with a value over $10,000 at any time during the calendar year.
It makes no difference if the average amount in the account during the year is less than $10,000 or all the money is withdrawn by the end of the year. If the account held more than $10,000 any time during the year, the FBAR must be filed.
Moreover, the FBAR filing requirement is not limited to foreign accounts containing cash. You’re also supposed to file an FBAR if a foreign account has nonmonetary assets of more than $10,000. For example, the cash surrender value of a life insurance policy is such a nonmonetary asset.
The penalties for failing to file FBARs are severe. There is a minimum $10,000 penalty if your failure to file was inadvertent. However, if you are found guilty of willfully not filing an FBAR, the minimum fine is $100,000, or half the value of the account — whichever is greater.
To file, you must complete the FBAR form, which is available from the IRS website. The FBAR must contain the name and address of each financial institution in which you hold an account over $10,000, the account number or numbers, and the maximum amount in the account or accounts during the year.
The FBAR is not filed with your tax return. Instead, it must be separately filed with the IRS by June 30 each year — in this case, "filed" means the date it is received by the IRS, not the date it is postmarked or placed in the mail.
Obtaining an extension to file your federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. If you don’t have all the information you need to file the FBAR by June 30, you should file as complete a return as you can and later amend the FBAR when the additional or new information becomes available.
Help with questions about FBAR filing requirements is available by calling a FBAR hotline at 800-800-2877 and selecting option 2. You can also submit written questions about the FBAR rules by email addressed to FBARQuestions@irs.gov. A helpful set of FAQs regarding FBARs is also available on the IRS website.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.