FBAR: Foreign Accounts with Multiple Signatories
On 6/24/09, the IRS updated their Voluntary Disclosure FAQ clarifying the FBAR reporting requirements for foreign accounts with multiple signatories:
If parents have a jointly owned foreign account on which they have made their children signatories, the children have an FBAR filing requirement but no income. Should the children just file delinquent FBARs as described by FAQ 9 and have the parents submit a voluntary disclosure? Will both parents be penalized 20 percent each? Will each have a 20 percent penalty on 50 percent of the balance?
Only one 20 percent offshore penalty will be applied with respect to voluntary disclosures relating to the same account. In the example, the parents will be jointly required to pay a single 20 percent penalty on the account. This can be through one parent paying the total penalty or through each paying a portion, at the taxpayers’ option. For those signatories with no ownership interest in the account, such as the children in these facts, they may file delinquent FBARs with no penalty as described in FAQs 9 and 41. However, any joint account owner who does not make a voluntary disclosure may be examined and subject to all appropriate penalties.
If there are multiple individuals with signature authority over a trust account, does everyone involved need to file delinquent FBARs? If so, could everyone be subject to a 20 percent offshore penalty?
Only one 20 percent offshore penalty will be applied with respect to voluntary disclosures relating to the same account. The penalty may be allocated among the taxpayers making the disclosures in any way they choose. The reporting requirements for filing an FBAR, however, do not change. Therefore, every individual who is required to file an FBAR must file one.
FBARs and Offshore Hedge Funds
The California Tax Lawyer (Summer 2009 Edition) published my article: FBARs and Offshore Hedge Funds. Please see copy below.
FBARs and Offshore Hedge Funds
After the landmark agreement between the U.S. and Swiss government over secret UBS Swiss bank accounts held by U.S. citizens, the IRS is now focusing on hedge funds in the Cayman Islands. Recently, IRS officials advised that certain U.S. investors in off-shore hedge funds must file a FBAR.
On June 12, 2009, an IRS official stated that the term “financial interest” (which requires a FBAR filing) includes hedge funds that “function as mutual funds.” It appears the IRS and Justice Department will identify U.S. taxpayers who evade U.S. taxes by investing with off-shore hedge funds. The IRS and Justice Department are pressing foreign financial institutions to provide them with information about Americans with “foreign, secret bank accounts.”
Senate Finance Committee Chairman Max Baucus (D., Mont.) has introduced legislation that would require an FBAR to be filed with a tax return. It would also require U.S. financial institutions to report to the IRS transfers of money into any foreign financial account. This would make it possible for the IRS to have information about the creation of a foreign account at the beginning.
Penalty Regime for Foreign Bank Account Filing (FBAR)
The California Tax Lawyer (Summer 2009 Edition) published my article: Penalty Regime for Foreign Bank Account Filing (FBAR), please see copy below.
Penalty Regime for Foreign Bank Account Filing (FBAR)
Each U.S. person who has a financial interest in, or signature or other authority over, one or more foreign financial accounts (valued over $10,000, at any time during a calendar year) is required to report the account on Schedule B/Form 1040, and TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (FBAR)), due by June 30 of the succeeding year (I.R.M. 5.21.6.1. (2/17/09)). The IRS has six years to assess a civil penalty against a taxpayer who violates the FBAR reporting rules.
Failure to file the required report or maintain adequate records (for 5 years) is a violation of Title 31, with civil and criminal penalties (or both). For each violation a separate penalty may be asserted.
(I) Non Willful Violation: Civil Penalty - Up to $10,000 for each violation.
(II) Negligent Violation: Civil Penalty - Up to the greater of $100,000, or 35 percent of the greatest amount in the account.
(III) Intentional Violations -
(1) Willful Failure to File FBAR or retain records of account: (a) Civil Penalty - Up to the greater of $100,000, or 50 percent of the greatest amount in the account; (b) Criminal Penalty - Up to $250,000 or 5 years or both.
(2) Knowingly and Willfully Filing False FBAR: (a) Civil Penalty - Up to the greater of $100,000, or 50 percent of the greatest amount in the account; (b) Criminal Penalty - $10,000 or 5 years or both.
(3) Willful Failure to File FBAR or retain records of account while violating certain other laws: (a) Civil Penalty - Up to the greater of $100,000, or 50 percent of the greatest amount in the account; (b) Criminal Penalty - Up to $500,000 or 10 years or both.
FBAR Filing: Domestic Corporations with Foreign Accounts
In the IRS Workbook on the Report of Foreign Bank and Financial Accounts, the IRS advised that a domestic (e.g., NY) corporation that has foreign accounts:
1. The corporation must file a FBAR for the corporations’ accounts.
2. A majority shareholder (over 50% of the value of the stock), must also file a FBAR.
For a domestic corporation with foreign accounts, both the corporation and the majority shareholder must each file a FBAR to report the foreign account (owned by the domestic corporation).
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