The acronym “FBAR” stands for “Foreign Bank Account Reporting,” also referred to as the “Report of Foreign Bank and Financial Accounts.” The FBAR, officially FinCEN Form 114, is an electronic tax document. Certain taxpayers – including dual citizens – must file an FBAR to report the existence of foreign bank accounts and offshore income to the Internal Revenue Service (IRS). Failure to comply with the confusing world of FBAR requirements can result in harsh penalization, which is why our Roseville tax preparation service has prepared this short overview of FBAR requirements for U.S. dual citizens in California.
Do Dual Citizens Have to File an FBAR?
Most countries tax individuals on the basis of residence. However, the United States taxes individuals on the basis of citizenship, a system appropriately dubbed “citizenship-based taxation.” Under this system, an individual who lives and works abroad is generally required to file a tax return if he or she holds dual citizenship with the United States.
However, a personal income tax return is not the only document a dual citizen must worry about filing. If the individual earns income or controls bank accounts in other countries, such as checking accounts at foreign banks, he or she must report it to the U.S. government by filing an FBAR online.
That said, simply having foreign income may not be sufficient to trigger FBAR filing requirements for dual citizens. As is true of domestic income, foreign income must also surpass certain thresholds before the reporting requirements kick in. If you are a dual U.S. citizen, you must file an FBAR if the following statements apply:
- You have financial interest in, or signature authority over, one or more foreign bank accounts.
- The value of the account or accounts surpassed $10,000 at any time during the year.
Because there are grave consequences for failing to file an FBAR, you should speak with a tax preparer for individuals or businesses to confirm your unique filing responsibilities. As the adage goes, “Ignorance of the law excuses no one” – particularly where the IRS is concerned.
FBAR Filing Deadline 2018
Like your federal tax return, your FBAR is generally due annually on April 15. However, like the deadline to file a tax return, the deadline to file an FBAR can change from year to year, depending on how weekends and holidays are timed.
Like the tax filing deadline for 2018, the FBAR filing deadline for 2018 was Tuesday, April 17. However, if you missed the 2018 FBAR deadline, don’t panic: you are allowed an automatic extension of up to six months, which pushes this year’s FBAR filing deadline back to October 15, 2018. The Financial Crimes Enforcement Network, or FinCEN – the same government agency that manages electronic FBAR submissions – announced this extension in February 2018, stating, “Filers who fail to file their 2017 calendar year FBAR by April 17, 2018, have an automatic extension up to October 15, 2018.”
It’s important to take note that, even though the original FBAR deadline was April 17, the extended deadline is October 15.
Penalties for Failure to File FBAR
There are two types of FBAR penalties: civil penalties, which can be very costly but do not involve jail time, and criminal penalties, which threaten the taxpayer with both fines and incarceration. The type of penalties that a taxpayer can receive depends on whether the failure to file an FBAR was inadvertent (“non-willful”) or intentional (“willful”).
Non-willful failure to file an FBAR can lead to expensive civil penalties, but will not expose the taxpayer to criminal liability. On the other hand, criminal penalties do not negate or prevent civil penalties. If you receive criminal penalties for failure to file an FBAR, you are likely to receive civil penalties in addition.
Civil FBAR penalties include a fine of up to $100,000, or up to 50% of the account balance – whichever figure is greater. Criminal FBAR penalties include a maximum fine ranging from $250,000 to $500,000, and a maximum sentence ranging from five to 10 years in prison, depending on the circumstances. The maximum fines for noncompliant financial institutions, such as banks, are even greater: up to $1 million.
FBAR Tax Services for Dual Citizens in CA and Abroad
For many years, the IRS allowed noncompliant taxpayers to reduce their FBAR penalties by making voluntary disclosures through a program called the “Offshore Voluntary Disclosure Program” (OVDP). However, the OVPD is ending this year, leaving taxpayers with fewer options.
The best way to minimize or avoid FBAR penalties is to make a timely and thorough disclosure consistent with foreign income reporting requirements. If you are a dual U.S. citizen with income or bank accounts overseas, the tax accountants of Cook CPA Group can help you understand and comply with the laws, while simultaneously helping you make strategic use of the Tax Code. To learn more about FBAR requirements for dual citizens and how they might affect you, your family, or your business, contact Cook CPA Group online, or call our Sacramento CPA firm at (916) 724-1665 today.