As of March 1st, 2016 the U.S. Treasury’s Financial Crimes Enforcement Network has issued a notice of proposed rulemaking order. The proposed rule will rearrange long-standing system of reporting foreign bank and financial accounts using form FinCen 114 or FBAR.
FBAR applies to all U.S. taxpayers with foreign financial accounts that have an aggregate value $10,000 or more at any point during the year. If you own or control foreign bank or financial accounts with a combined value over $10,000, then you will likely file an FBAR. The reporting requirement covers many different types of foreign bank and financial accounts that are held outside of the United States, including everyday checking, savings, foreign retirement, investment and many others. A $10,000 per violation penalty can apply if you do not file an FBAR stating your foreign accounts even if this is done unintentionally. Harsher penalties may be enforced if the failure to report is willful.
Currently the FBAR requirements apply to persons, including company employees, officers, and financial professionals even though they do not have a financial interest in the account but merely possess signature authority. The signature authority that arises is typically a result of the employee-employer agency relationship.
Another current requirement limits the reporting obligations of an individual who holds 25 or more foreign bank or financial accounts. The obligation is deemed to have been met so long as the holder retains detailed account records for five years.
There are two changes proposed which affect the aforementioned reporting obligations. The first proposed change removes the reporting requirement for employees, trustees, or officers in an organization that have been afforded signature authority but do not have a bona fide financial interest in the account. The second proposed change waives the limitation of the requirement for account reporting once the 25-account ceiling is reached.
The proposed change for holders with 25 or more accounts are less impactful in light of the standing Foreign Account Tax Compliance Act (FATCA). Since FATCA’s reporting obligations were first introduced in 2011, holders of these accounts have already been subjected to reporting of all accounts held personally or jointly irrespective of the number.
Regardless, if the proposed rule will affect you or not, particularly in light of the underlying FATCA requirements, March 1st’s notice serves as an invitation for anyone to comment on the proposals. The U.S. government will keep this welcome window open until April 25th, just a little over a month from now. As always in tax, staying informed serves as a shield against possible tax penalties and poor guidance.
