FAQ

A U.S. taxpayer is required to file an FBAR if they have foreign financial accounts with an aggregate max value of $10,000 or more. A taxpayer is required to aggregate the foreign account values of those they own a direct interest in or which they have signatory authority over. Accounts over which you hold signatory authority include those accounts held through foreign businesses that you as the taxpayer have signature authority on behalf of. If your foreign account is denominated in foreign currency, you will have to convert the value of that offshore account into the U.S. dollar to determine its account value is in excess of $10,000 at any point time in the year.

The general due date for an FBAR is April 15th of the year following the applicable tax year. However, an automatic extension is granted to file your FBAR by October 15th of the year following the applicable tax year. If you miss the filing date, speak with a skilled Orange County FBAR lawyer about your delinquent FBAR as soon as possible.

If your offshore account is reported in foreign currency, it will have to be converted into the United States dollar to determine, if, in aggregate with your other foreign financial accounts, their max value throughout the year was in excess of $10,000 at any time throughout the year. You can find the applicable rates of exchange on the United States Treasury Bureau of Fiscal Services site here.

There is an option to report the accounts you cannot find the max value for as unknown on the FBAR. If you have multiple accounts that you do not know the max value of, and you believe your aggregate account values were in excess of $10,000 you should file an FBAR to protect yourself from the imposition of potential civil penalties for the failure to properly such accounts. A word for the wise when determining your max account value for the year. If your annual account statement does not provide a specified max value, you will have to find this on your own. You will have to look through your monthly bank statements and determine the max value through your search of such statements.

Yes. Your FBAR can be filed electronically with the U.S. Treasury. You can file your FBAR electronically here, with the BSA E-filing System, Financial Crimes Enforcement Network.

If you failed to properly report your accounts in prior years or the current year, you have options to file delinquent or prior years FBARs through various disclosure programs. There are various options for you as outlined below— IRS Voluntary Disclosure Practice: This program is made for persons who may have willfully not properly reported their foreign income and other foreign assets to the IRS. This program provides taxpayers with certain protections to avoid criminal prosecution for disclosures made. At a minimum, the taxpayer will have to report the prior six years of FBARs. Streamline Filing Compliance Procedures: The streamline disclosure program is made for taxpayers who non willfully reported foreign income and other foreign assets. This program provides taxpayers civil protections against the improper reporting of foreign income and assets for prior years. At a minimum, a taxpayer will have to prepare and file the prior six years of FBARs. Delinquent FBAR Submission Program: This program allows taxpayers to prepare and file delinquent FBARs. Your delinquent or non-filed FBARs will need to be prepared along with a statement explaining why you are filing the FBAR late and submit them electronically with the BSA E-filing System, Financial Crimes Enforcement Network.

Yes. Foreign accounts that you jointly own with another person or entity must be reported on your FBAR. Specific details about the joint owner will have to additionally reported. This will include the joint owner’s name, address, SSN/ITIN/EIN, etc. Additionally, it is possible to report FBARs jointly. However, this is only allowed in limited situations. Generally, if you are jointly reporting and FBAR with your spouse, the reciprocal joint owner will also have to reciprocally report you on their annual FBAR filing.

This depends. If you have signatory authority over the foreign financial accounts you own through a business, then you must report such accounts on your FBAR. Generally, this will be required of an officer, director, or treasurer of a U.S. business with foreign accounts.

An FBAR requires specific details about the foreign accounts you have a direct financial interest in or have signatory authority over. Specific details include the account number, name of the applicable bank or foreign financial institution, the address of the foreign bank, and the max value of the account. If the account is denominated in a foreign currency, the max value of the account will have to be converted into the United States dollar to be properly reported on your FBAR filing.

FBAR Frequently Asked Questions Questions about reporting requirements for your offshore bank account or how to avoid criminal prosecution or an FBAR penalty? Below are some of the most common questions our Orange County FBAR lawyers receive. How Do I Determine I Am Required to File an FBAR? A U.S. taxpayer is required to file an FBAR if they have foreign financial accounts with an aggregate max value of $10,000 or more. A taxpayer is required to aggregate the foreign account values of those they own a direct interest in or which they have signatory authority over. Accounts over which you hold signatory authority include those accounts held through foreign businesses that you as the taxpayer have signature authority on behalf of. If your foreign account is denominated in foreign currency, you will have to convert the value of that offshore account into the U.S. dollar to determine its account value is in excess of $10,000 at any point time in the year. What Is the Due Date for Filing an FBAR? The general due date for an FBAR is April 15th of the year following the applicable tax year. However, an automatic extension is granted to file your FBAR by October 15th of the year following the applicable tax year. If you miss the filing date, speak with a skilled Orange County FBAR lawyer about your delinquent FBAR as soon as possible. How Do I Report My Account Held in Foreign Currency? If your offshore account is reported in foreign currency, it will have to be converted into the United States dollar to determine, if, in aggregate with your other foreign financial accounts, their max value throughout the year was in excess of $10,000 at any time throughout the year. You can find the applicable rates of exchange on the United States Treasury Bureau of Fiscal Services site here. What if I Can’t Determine the Max Value of My Foreign Account in the Year? There is an option to report the accounts you cannot find the max value for as unknown on the FBAR. If you have multiple accounts that you do not know the max value of, and you believe your aggregate account values were in excess of $10,000 you should file an FBAR to protect yourself from the imposition of potential civil penalties for the failure to properly such accounts. A word for the wise when determining your max account value for the year. If your annual account statement does not provide a specified max value, you will have to find this on your own. You will have to look through your monthly bank statements and determine the max value through your search of such statements. Can I File My FBAR Electronically? Yes. Your FBAR can be filed electronically with the U.S. Treasury. You can file your FBAR electronically here, with the BSA E-filing System, Financial Crimes Enforcement Network. What Do I Do if I Failed to Properly Report My Accounts in Prior Years? If you failed to properly report your accounts in prior years or the current year, you have options to file delinquent or prior years FBARs through various disclosure programs. There are various options for you as outlined below— IRS Voluntary Disclosure Practice: This program is made for persons who may have willfully not properly reported their foreign income and other foreign assets to the IRS. This program provides taxpayers with certain protections to avoid criminal prosecution for disclosures made. At a minimum, the taxpayer will have to report the prior six years of FBARs. Streamline Filing Compliance Procedures: The streamline disclosure program is made for taxpayers who non willfully reported foreign income and other foreign assets. This program provides taxpayers civil protections against the improper reporting of foreign income and assets for prior years. At a minimum, a taxpayer will have to prepare and file the prior six years of FBARs. Delinquent FBAR Submission Program: This program allows taxpayers to prepare and file delinquent FBARs. Your delinquent or non-filed FBARs will need to be prepared along with a statement explaining why you are filing the FBAR late and submit them electronically with the BSA E-filing System, Financial Crimes Enforcement Network. Do I Have to Report Foreign Accounts With Joint Owners? Yes. Foreign accounts that you jointly own with another person or entity must be reported on your FBAR. Specific details about the joint owner will have to additionally reported. This will include the joint owner’s name, address, SSN/ITIN/EIN, etc. Additionally, it is possible to report FBARs jointly. However, this is only allowed in limited situations. Generally, if you are jointly reporting and FBAR with your spouse, the reciprocal joint owner will also have to reciprocally report you on their annual FBAR filing. Do I Have to Report the Accounts I Hold Through a Foreign Business? This depends. If you have signatory authority over the foreign financial accounts you own through a business, then you must report such accounts on your FBAR. Generally, this will be required of an officer, director, or treasurer of a U.S. business with foreign accounts. What Do I Have to Report About My Foreign Accounts on an FBAR? An FBAR requires specific details about the foreign accounts you have a direct financial interest in or have signatory authority over. Specific details include the account number, name of the applicable bank or foreign financial institution, the address of the foreign bank, and the max value of the account. If the account is denominated in a foreign currency, the max value of the account will have to be converted into the United States dollar to be properly reported on your FBAR filing. Do I Owe Penalties for Failing to Report Foreign Accounts on an FBAR? Yes. There are both civil and criminal penalties applicable to the improper and non-filings filing of FBARs. The criminal penalties include: Willful Failure to File an FBAR. Up to $250,000 or 5 years in jail or both. Willful Failure to File an FBAR while violating another “law of the United States” or as part of a pattern of any illegal activity involving more than $1000k in a 12 month period. Up to $500k or 10 years in jail or both. On top of the fines and jail time, the willful failure to file an FBAR is a felony which can result in collateral consequences such as: The loss of the right to vote; Revocation of professional licenses such as those for CPAs, attorneys, and doctors; The loss of the right to bear arms; Loss of employment; and Deportation of a green card holder AFTER jail time has been served. In addition to criminal penalties, there are onerous civil penalties for failing to report a foreign financial account on an FBAR. There is a three-tier system for these civil FBAR penalties. For willful violations occurring after October 22, 2004, the maximum civil penalty is the greater of $100,000, or 50 percent of the balance of the account at the time of the violation. The IRS issued guidelines stating that the maximum amount of the civil FBAR penalty it would seek to enforce would be no more than 100% of the highest balance in the offshore bank accounts. The guidelines indicate that in “most cases” the penalty would be limited to 50% of the maximum balance in the foreign bank accounts. If the holder of an offshore financial account can successfully convince the IRS that the failure to file the FBAR was not willful, then the penalties would be limited to $10,000 per violation. However, the IRS takes the position that a separate violation occurs for each bank account that is not listed on the FBAR.

Depending on the type of improper reporting, you will want to consult either a tax attorney or a CPA specializing in international tax reporting. These tax professionals will understand the various disclosure programs available to you based upon your level of non-compliance. A tax attorney is uniquely qualified to bring you through the IRS Voluntary Disclosure Practice. That is because this program provides disclosing taxpayers criminal protections in exchange for their applicable disclosure. A tax attorney in this situation can provide you, the disclosing taxpayer, attorney-client privilege with respect to the facts around your previous non-disclosure. If a CPA is used, they cannot provide you the same protections. Contact an Orange County FBAR attorney at Evolution Tax and Legal to learn how we can help you prepare and file an FBAR.

If you get a notice from the IRS about failing to properly report foreign financial accounts in prior years, contact a professional tax advisor immediately. The two major tax professional you consider talking to is either a tax attorney or tax CPA that specialize in international tax reporting. They will be able to provide you more information on the IRS notice and take care of any outstanding tax filing obligation the IRS notice cites. These IRS notices can be onerous, and may even cite criminal or civil penalties related to your failure to properly report prior foreign financial accounts. The tax advisor you engage should be able to help prepare and file any outstanding FBAR obligations, and even potentially take you through an IRS voluntary disclosure program or help reduce the imposition of penalties cited by the IRS notice. Here, if you believe that you could be subject to criminal penalties related to the improper reporting of foreign bank accounts, you should consult a tax attorney. Tax attorneys are uniquely qualified to represent you with criminal tax issues as they can provide you with attorney-client privilege over your conversations related to your prior reporting. Tax CPAs do not have the ability to provide you this same type of attorney-client relationship protection.

Yes. Every U.S. taxpayer reports their income to the IRS on a “worldwide basis.” This means that income earned, no matter the place earned, must be reported to the U.S. government. This is also true of both individuals and businesses alike.

If your business owes tax to a foreign government, you may be entitled to a credit against your U.S. tax liability for the year. This credit is better known as the “foreign tax credit”. A U.S. taxpayer is entitled to offset their U.S. tax liability by the amount of income tax they pay to a foreign country. The credit is available to both individuals and businesses, but is complex to calculate and subject to numerous limitations.

Yes. All U.S. taxpayers report and pay tax on their “worldwide income.” This means, a U.S. taxpayer is obligated to report all income earned in the year, wherever so earned. This is the same for both individuals and businesses alike. You may, however, be entitled to special credits and exemptions for income earned overseas and which foreign income tax is paid on.

Yes. If your business operates and holds assets overseas, you may be required to report one of the forms listed below. These are just the basic forms, so please contact a professional tax advisor for a detailed discussion on all your reporting obligations. Report of Foreign Bank and Financial Accounts (FBAR). This form is required for U.S. taxpayers who hold foreign financial accounts with an aggregate max value of $10,000 or more in a given tax year. If required to file this form, the U.S. taxpayer must report specific details about all such foreign financial accounts such as the account number, bank name and address, max value of the account in the given year, etc. Form 8938, Statement of Specified Foreign Financial Assets. Form 8938 is required to be reported by U.S. taxpayers who have an aggregate max value of certain foreign financial assets in a given year over a specified threshold. The nature of the reporting required by Form 8938 is similar in nature to that of the FBAR discussed above, but requires additional detail and reporting. The thresholds to report this form vary depending on whether the U.S. taxpayer resided in the U.S. or in a foreign country. You can find the reporting threshold on the IRS website here. Form 1116, Foreign Tax Credit. Form 1116 is required to report the details of the foreign tax credit a U.S. taxpayer takes in a given year. Form 1116 requires the reporting of pertinent details about the calculation of the foreign tax credit taken. It requires the reporting of certain items such as total income, foreign source income, the amount of foreign income tax paid in a given year, etc. Form 2555, Foreign Earned Income. Form 2555 is required for those U.S. taxpayers electing to take the “foreign earned income exclusion” (FEIE) in a given year. The FEIE allows U.S. taxpayers, residing and earning income abroad of the U.S., to “exclude” some of their foreign earned income from U.S. taxation. Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. Form 5471 is required to be reported by U.S. taxpayers who are officers, directors, or shareholders in certain foreign corporations. There are five categories of filers, each category of which has its own certain reporting requirements. Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. Form 8865 is required to report the activity of controlled foreign partnerships, transfers to foreign partnerships, or acquisitions, dispositions, and changes in foreign partnership interests. Similar to Form 5471, Form 8865 has various categories of filers, each of which has its own specific set of reporting requirements.

The United States has a network of tax treaties they entered with foreign countries to help avoid the incidence of double taxation on income of persons transacting amongst the two countries. Treaties dictate how income earned and reported by the two countries will be reported and which country has jurisdiction over taxing certain types of income earned. The tax treaty calls out protections for certain types of persons and income earned, which can be claimed on the return of a person filing a U.S. tax return. For U.S. purposes, the claiming of these tax treaty benefits is completed on Form 8833, Treaty-Based Return Position Disclosure. This form is required to report the treaty benefits claimed and how they are reported on your U.S. tax filing for the year.

Yes. There are various credits and exemptions granted to U.S. taxpayers on foreign income earned in a given year. These are granted in various forms. First, the U.S. provides a credit for foreign income tax paid to a foreign country. Second, the U.S. provides an exemption for certain foreign earned income in a given year for those U.S. taxpayers living and earning income abroad. Finally, the U.S. has entered a large network of tax treaties between various foreign countries that are aimed at lowering the incidence of dual taxation on income earned between the two countries. This, of course, is a non-exhaustive list of the potential options out there for a U.S. taxpayer to utilize when filing their taxes for a given year. An Orange County business tax attorney should be consulted to properly inform you of all of your options. Contact our law firm to learn more.

If your business owns a foreign company, you may have special reporting obligations and will be taxable on certain types of income earned by the foreign company. Generally, this depends on the level of your business’s overall ownership of the foreign company and the specific type of income earned by the foreign company. You may owe tax on the income earned by the foreign company your business owns. You should consult a business tax lawyer in Orange County to discuss your options.

U.S. businesses are entitled to various credits and exemption with respect to foreign income. Two of the most popular are the Foreign Tax Credit (FTC) and the Foreign Earned Income Exemption (FEIE). The FTC provides U.S. taxpayers a dollar-for-dollar tax credit against their U.S. tax liability for foreign income tax paid to foreign countries. The FEIE allows U.S. taxpayers who reside and earn income abroad to “exclude” foreign earned income from U.S. taxation, subject to certain limitations.

Yes. Just as a U.S. taxpayer is required to report their worldwide income, a U.S. taxpayer is associated to a deduction on expenses associated with such income reported. This means that you are entitled to deduct expenses incurred in a foreign country, so long as they comply with the normal requirements of the Internal Revenue Code to be otherwise deductible.

If your U.S. business has foreign owners, you may have special reporting and withholding requirements. For example, IRS Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is required to report a foreign owner’s interest in corporations engaged in a U.S. trade or business who owns more than 25% of such corporation. Additionally, Forms 1042, 1042-S, and 1042-T are forms required to be filed to report payments to foreign persons, including non-resident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts. If a U.S. business has a foreign owner, and payments are made to said owner, Forms 1042, 1042-S, and 1042-T may be required to be filed to report required amounts withheld from such payment(s).

Generally, a full-blown audit is not required for disclosures through the Streamlined Offshore Disclosure Program, Delinquent FBAR Submission Program, and Delinquent International Information Return Program. However, it is not guaranteed that the IRS will select your disclosure package for review once they have processed it. However, disclosures through the IRS’s Voluntary Disclosure Practice mandatorily require an audit. That is because disclosures through the Voluntary Disclosure Practice provide taxpayers with protections against certain criminal prosecution. These disclosures are very thorough, and may even require an interview of the disclosed.

In my experience, it generally takes the IRS three to four months to disclose through the Streamlined Offshore Disclosure Program, Delinquent FBAR Submission Program and Delinquent International Information Return Program. Upon completion of the process, the IRS will generally issue a notice to the taxpayer making the disclosure notifying them that their disclosure practice has been processed and accepted by the IRS. As for disclosures through the IRS’s Voluntary Disclosure Practice, this disclosure takes significantly longer, with a process that can last longer than a year. Specifically, the disclosure process works in three steps. In step one, you provide the IRS’s Criminal Investigation unit a voluntary disclosure request pre-check whereby the IRS determines if you are eligible to make a disclosure through its Voluntary Disclosure Practice. Once the pre-check is processed by the IRS, you have 45 days to complete step two. In this step, you provide the IRS certain details about the non-compliance you are disclosing supplemented by a narrative that must explain the facts behind such non-compliance. Once step two is completed and processed by the IRS, you enter step three. Step three requires the filing of amended tax returns and FBARs directly with the IRS’s Criminal Investigation unit that is supplemented by an audit. Once the audit is completed and the IRS accepted the amended return filed, the disclosure is over.

There are various methods to pay any additional tax, fines, or penalties owed through an IRS disclosure program. Generally, the amounts due can be paid by check directly to the Internal Revenue Service. However, alternatively, there are payment method options directly on the IRS website which you can find here.

Generally, an interview is not required by the IRS for disclosures through the Streamlined Offshore Disclosure Program, Delinquent FBAR Submission Program, and Delinquent International Information Return Program. However, the same cannot be said for disclosures through the IRS Voluntary Disclosure Practice. In my experience, these disclosures are supplemented by an interview of the disclosing taxpayer. The taxpayer being interviewed is allowed to maintain the presence of their attorney through the interview to help them answer questions asked by the IRS. If reported all my foreign income but failed to properly report my foreign accounts, what program is best for me? If you even fail to report a single dollar of foreign income, the best disclosure programs for you are the IRS’s Streamlined Offshore Disclosure Program of the Voluntary Disclosure Practice. These programs will allow you to report previously unreported income while protecting you from civil and criminal penalties for such failure. As for the Delinquent FBAR Submission Program and Delinquent International Information Return Program, these disclosures are preserved solely for those who reported all of their foreign income on previous US tax filings. These programs allow taxpayers to properly report previously incorrectly reported foreign financial assets. The Delinquent FBAR Submission Program and Delinquent International Information Return Program provide against civil penalties applicable to the incorrect reporting of foreign financial assets. They do not, however, protect against civil and criminal penalties for the failure to report income earned with respect to such foreign accounts.

Yes. These programs are even available to those taxpayers who reside outside of the United States.