FBAR reporting considerations.

• Author: Mahany, Brian
• Position: Foreign bank accounting reporting

For many individual tax clients, April 15 is the day when returns must be filed. For millions of other taxpayers, another deadline remains on the horizon. June 30 is the deadline for U.S. taxpayers (including green card holders) to report foreign financial accounts. The National Taxpayer Advocate has estimated that 5 million to 7 million Americans live abroad and many more living in the United States may have foreign accounts (Taxpayer Advocate Service, 2012 Annual Report to Congress, p. 134). That presents both an opportunity and a challenge.

The requirement to report offshore holdings dates back to 1970 and the passage of the Bank Secrecy Act, P.L. 91-508 (also known as the Currency and Foreign Transactions Reporting Act). The law was passed as a method of combating money laundering and drug trafficking. By requiring banks to report transactions involving more than $10,000 in cash and other suspicious transactions, the federal government hoped to make it more difficult for criminal enterprises, such as drug dealers, to move their money.

Under the Bank Secrecy Act, U.S. persons may also be required to annually file a Report of Foreign Bank and Financial Accounts (FBAR). (This was formerly Treasury Form TD F 90-22.1; now there is no form, and FBARs must be filed electronically through the Financial Crimes Enforcement Network's BSA e-filing system.) U.S. persons who have a financial interest in or signatory authority over foreign financial accounts that in the aggregate exceed $10,000 at any time during the year must report the accounts by June 30 of the following calendar year. For example, a taxpayer who had two foreign accounts totaling $15,000 in 2012 was required to file an FBAR by June 30, 2013. As noted above, merely having a signatory interest in an account can trigger an FBAR requirement. Often, clients have signature authority over accounts for elderly parents or children residing overseas.

What Constitutes a Foreign Financial Account?

Bank accounts are an obvious example of foreign financial accounts, but other types of foreign investments and instruments also must be reported, including brokerage accounts, certificates of deposit, and annuities. In certain instances, insurance policies with an investment component must also be reported. This applies also to commodities accounts where investors can purchase physical gold or sterling silver and leave it with the foreign investment company for safekeeping. Today's investment world...