The Report of Foreign Bank and Financial Accounts, TD F 90–22.1, (FBAR), is required when a U.S. Person has a financial interest in or signature authority over one or more foreign financial accounts with an aggregate value greater than $10,000. If a report is required, certain records must also be kept.

Statutory and regulatory authority for the FBAR are 31 U.S.C. § 5314, 31 C.F.R. §§ 103.24 and 103.27 require filing an FBAR if you meet all of the filing requirements.

In order to determine whether or not the FBAR is required, all of the following must apply:

1. 1. The filer is a U.S. person;
   2. The U.S. person has a financial account(s);
   3. The financial account is in a foreign country;
   4. The U.S. person has a financial interest in the account or signature or other authority over the foreign financial account; and,
   5. The aggregate amount(s) in the account(s) valued in dollars exceed $10,000 at any time during the calendar year.

• A U.S. Person is defined by reference to three sources. 31 U.S.C. 5314 and 31 C.F.R. 103.24 identify persons who may be subject to the FBAR reporting requirement. The FBAR instructions identify a smaller group of persons who must file FBARs than could have been required, under the statute and regulations, to file.
• A citizen of the United States has a U.S. birth certificate or naturalization papers
• A “resident” of the United States is a permanent resident. “Permanent resident” is not defined in the FBAR instructions, regulations, or statute. The definition of “resident alien” found in IRC § 7701(b) is not applicable for FBAR purposes. The plain meaning of the term “resident” (in this context, someone who is living in the U.S. and not planning to permanently leave the U.S.) should be used for FBAR examination purposes. Although IRC § 7701(b) is not applicable, an individual can establish that he is not a resident for FBAR purposes if he can show that none of the following three criteria apply:
• For FBAR purposes, the definition of “person” also includes a corporation, trust, or partnership.
  a.  A corporation that owns directly or indirectly more than a 50 percent interest in one or more other entities is permitted to file a consolidated FBAR, on behalf of itself and the other entities. The consolidated report must include a list of the entities. An authorized official of the parent corporation should sign the consolidated report.

A financial account includes a:

• Bank account, such as a savings, demand, checking, deposit, time deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution. A bank account set up to secure a credit card account is an example of a financial account. An insurance policy having a cash surrender value is an example of a financial account.
• Securities, securities derivatives, or other financial instruments account.
• Other financial accounts generally encompass any accounts in which the assets are held in a commingled fund and the account owner holds an equity interest in the fund. A mutual fund account is an example of such an account.
• Individual bonds, notes, or stock certificates held by the filer are not a financial account.

• The location of an account, not the nationality of the financial institution with which the account is held, determines whether the account is in a foreign country. Any financial account (except accounts maintained with a U.S. military banking facility) that is located in a foreign country should be reported, even if the account is held with a branch of a United States financial institution located abroad.
• Generally, an account in a foreign country includes all geographical areas located outside the United States.

A person having signature or other authority over a foreign financial account must file the FBAR even if the person has no financial interest in the account.

A person has signature authority over an account if that person can control the disposition of money or other property in it by delivery of a document containing his signature (or his signature and that of one or more other persons) to the financial institution where the account is maintained.

Convert foreign currency by using the official exchange rate in effect at the end of the year in question for converting the foreign currency into U. S. dollars. In valuing currency of a country that uses multiple exchange rates, use the rate that would apply if the currency in the account were converted into U. S. dollars at the close of the calendar year.

• The FBAR must be filed on or before June 30 each calendar year.
• The FBAR is considered filed when it is received in Detroit, not when it is postmarked
• .Extensions of time to file federal income tax returns do not extend the time for filing FBARs. There is no statutory or regulatory provision specifically granting an extension of time for filing FBARs.
• Effective July 1, 2013, all FBAR reports must be filed electronically.

Taxpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all offshore tax issues. Taxpayers who do not submit a voluntary disclosure run the risk of detection by the IRS and the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and an increased risk of criminal prosecution.

The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation of taking timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS will not recommend criminal prosecution to the Department of Justice.

No. If the IRS has initiated a civil examination, regardless of whether it relates to undisclosed foreign accounts or undisclosed foreign entities, the taxpayer will not be eligible to come in under the IRS’s Voluntary Disclosure Practice.

The purpose for the voluntary disclosure practice is to provide a way for taxpayers who did not report taxable income in the past to voluntarily come forward and resolve their tax matters. Thus, If you reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure process.

Possible criminal charges related to tax returns include tax evasion (26 U.S.C. § 7201), filing a false return (26 U.S.C. § 7206(1)) and failure to file an income tax return (26 U.S.C. § 7203). The failure to file an FBAR and the filing of a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.

If you are having difficulty, speak with your agent or if your case is not yet assigned, contact the IRS OVDP Hotline at (267) 941-0020. Our experience with offshore cases in recent years has shown that taxpayers are ultimately successful in retrieving copies of statements and other records from foreign banks.