With the tax deadline upon us and the Panama Papers' prevalence, many taxpayer may be wondering what reporting requirements they may have missed. A little known form, FinCEN Form 114, has been gaining a lot of traction in recent years as more people find themselves falling into the filing requirement category. What is this form you ask? The FinCEN Form 114 is the revamped version of the Foreign Bank Account Report Form TD F 90-22.1 or "FBAR", as it is better known, which has been around since the 1970's. It wasn't until 2004, when Congress had introduced new penalties for non-willful violations and even more stringent penalties (including criminal) for willful ones, that more taxpayers began to comply with the meticulous filing requirement. In brief, if you have an interest in or signature authority over a foreign financial account, you must file if the aggregate balance of all of your foreign financial accounts exceed $10,000 USD at any time during the year - but more on this later.

While most of my clients respond "I wish" to the question of whether they have a foreign financial account, each year I come across a few taxpayers who in fact do. Whether it be that inherited property they sold in Russia or the account opened while on an eight month transfer to Hong Kong, the need to open a foreign account is, at times, unavoidable and the memory of it, usually faint. Despite only exceeding the threshold for a few days, the filing requirement still exists and complying today can avoid potential headaches in the future.

With the passing of the Foreign Account Tax Compliance Act (FATCA) in 2010, foreign account ownership is becoming transparent as foreign financial institutions are required to report accounts held by U.S. taxpayers as well as foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Who Must File an FBAR

A United State person is required to file an FBAR if:

The U.S. person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

A United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Types of reportable foreign assets

Securities, brokerage, savings, checking, deposit, time deposit and other accounts maintaned with a foreign financial institution
Commodity futures and options accounts
Insurance policies with a cash value
Annuity policies with a cash value
Shares in a mutual fund or similar pooled fund

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

Certain foreign financial accounts jointly owned by spouses
United States persons included in a consolidated FBAR
Correspondent/Nostro accounts
Foreign financial accounts owned by a governmental entity
Foreign financial accounts owned by an international financial institution
Owners and beneficiaries of U.S. IRAs
Participants in and beneficiaries of tax-qualified retirement plans
Certain individuals with signature authority over, but no financial interest in, a foreign financial account
Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
Foreign financial accounts maintained on a United States military banking facility.

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer’s income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR.

Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty 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.

What if I haven't filed?

Depending on the circumstances, you may be able to file under a various set of procedures.

If you are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, you should file any delinquent FBARs and include a statement explaining why the filing is late.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

What if I failed to report income?

You may file under one of two procedure:

Streamlined Filing Compliance Procedure

The streamlined filing compliance procedures describe below are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part. The streamlined procedures are designed to provide to taxpayers in such situations with

a streamlined procedure for fling amended or delinquent returns, and
terms for resolving their tax and penalty procedure for filing amended or delinquent returns, and
terms for resolving their tax and penalty obligations.

Offshore Voluntary Disclosure Program

This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. In addition to filing delinquent FBARs and paying hefty penalties, additional information must be included by taxpayers such as all account statements as well as consent to extend the time for the IRS to assess tax. Although the program does not have a closing date, the IRS may end the program at any time.