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Reporting on Foreign Bank & Financial Accounts

By September 10, 2014 No Comments

For those with foreign bank and financial accounts, it is extremely important that they understand how to report these accounts. New regulations can create serious penalties for a business or person that fails to file.

First, let’s take a look at what a foreign financial account is. A foreign account is an account outside of the United States and its territories, such as Puerto Rico and the District of Columbia. For example, a bank account located in a Mexican bank would be considered a foreign financial account. And, so would a brokerage account located in Italy. The securities insides the account are not the issue when defining a foreign financial account, it is the account itself. So, a brokerage account opened in the U.S. that invests its securities outside the U.S. would not be considered a foreign account, since the brokerage account was set up in the U.S.

When a person has foreign financial assets in foreign accounts, with a collective value exceeding $10,000 for a single day, it is necessary for the person to file form 114 (formerly form TD F 90-22.1) by June 30th with no extension allowed. It is important to note that filing an extension for your tax return does not extend this deadline. The penalty for failure to file is applied on an account by account basis. The civil penalty is limited to not exceed $10,000 per violation. However, a willful violation will be assessed a penalty of $100,000 or 50% of the account value (whichever is greater).

So, who is considered a person? A person is defined as a U.S. citizen, a resident alien, or an entity organized in the United States. Therefore, corporations, partnerships, trusts, limited liability companies, and individuals are required to file.

When reporting, a person must include accounts where they have direct financial interest, owned through an entity or accounts that they have signature authority over. For example, if you have a family member overseas, who gives you signature authority over their personal accounts, in case you need to access them, you now have to include their account in determining if you are required to file and included their account in your filing.

The value is a collective value of all accounts. Therefore, if there are four accounts with one dollar each, and a fifth account with $9,999, a return would be required to be filed since the aggregate value of all five accounts exceeded $10,000. In addition, all five accounts would be required to be included on the form. Accounts that were closed during the year also must be included on the form as well.

As the world gets smaller, this will become a bigger and bigger issue. Please contact us if you need assistance or it is unclear whether you need to file.