Report of Foreign Bank and Financial Accounts: significant revisions and severe penalties.

• Author: Pasmanik, Philip T.

In September 2008, the IRS website posted revisions to the Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1) that surprised many practitioners. This article discusses new traps for the uninitiated created by these revisions and the new reporting requirements for certain taxpayers who previously may not have been required to file this form.

Background

The Report of Foreign Bank and Financial Accounts (FBAR) originated with the Bank Secrecy Act (BSA) enacted in 1970. (1) The U.S. government was concerned that U.S. persons were using certain foreign banks to hide proceeds from illegal activities, to evade U.S. federal taxes, and for other non-tax evasion purposes. Under the BSA (2) Treasury developed new forms as law enforcement tools to track the movement of cash and to improve enforcement against certain nonfilers. Financial institutions and individuals are required to file these forms, including the FBAR.

The FBAR is a law enforcement tool administered by the IRS. The Financial Crimes Enforcement Network (FinCen) discloses information reported on the FBAR to international, national, and local law enforcement agencies as provided under U.S.C. title 31. The FBAR is not a tax return and is not covered under the confidentiality provisions of title 26. Since 1992, the IRS has been responsible for the investigation of certain aspects of compliance with respect to FBAR reporting. (3) The civil enforcement of FBAR violations was the responsibility of FinCen. (4) FinCen's "mission is to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems." (5) FinCen delegated its authority to the IRS in 2003. (6)

The Revised FBAR Form

The revised FBAR form increased in scope from two to five reporting sections that may apply to the taxpayer. The form continues to report the foreign bank and financial account (accounts held outside the United States) information on a calendar-year basis, regardless of the flier's tax year end. The FBAR is not filed with the taxpayer's U.S. federal income tax return and is due on June 30 of the succeeding calendar year. It is filed with the Department of Treasury in Detroit regardless of where the taxpayer files its U.S. federal income tax return. No extension of time to file this form is permitted, even if the taxpayer has an extension to file its U.S. federal income tax return.

As with the previous version of FBAR, Part I includes information about the filer, including the type of entity. Revised Parts II-V separate each type of account. Instead of indicating the account's value as within a range, such as between $10,000 and $99,999, the taxpayer should list the maximum account value in U.S. dollars of monetary and nonmonetary assets held...