Reporting interests in foreign bank and financial accounts.

• Author: Brodsky, Karen Canavan

In light of the current emphasis on counter-terrorism and homeland security, the IRS has increased its focus on the reporting requirements of U.S. persons who own interests in foreign bank accounts. As a result, in recent months it has been paying increased attention to Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR form); some taxpayers are receiving notices (including penalties) for not filing properly.

Background

Section 5314 of the Bank Secrecy Act (Act) authorizes Treasury to require U.S. persons to record and report transactions with foreign financial institutions. The Act was amended in 1992 to add anti-money-laundering provisions and, more recently, by the October 2001 enactment of the Uniting and Strengthening America By Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA Patriot Act). As Treasury explained in its Report to Congress in Accordance with Sec. 361(b) of The USA Patriot Act of 2001 (4/26/02), p. 3, "[t]his provision reflected congressional concern that foreign financial institutions located in jurisdictions with strict bank secrecy laws were being used to violate or evade domestic criminal, tax, and regulatory requirements."

The FBAR form provides that "the principal purpose for collecting the information is to assure maintenance of reports where such reports or records have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." The form mandates disclosure of financial account information, along with the taxpayer's tax identification number. Failure to file the form or to supply required information, and filing a false or fraudulent report, may result in civil and criminal penalties under 31 USC Sections 5321 and 5322, including a firm of up to $500,000 and imprisonment of up to 10 years. The FBAR form is not a tax return and, thus, is not subject to the confidentiality and disclosure restrictions applicable to returns under the Code. The form may be shared with other Federal government agencies, state, local and foreign law enforcement and regulatory personnel in the performance of their official duties.

Treasury originally delegated the authority to administer the FBAR filing requirement to the director of the Financial Crimes Enforcement Net work (FinCEN). Recently, FinCEN delegated its enforcement authority for the form to the IRS, to increase enforcement efforts; see 68 Fed. Reg. 26489 (5/16/03).

In January 2003...