Foreign Bank Account Reporting Requirements

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Many individuals and businesses headquartered in the United States have various levels of foreign operations.

These operations can be large in that entire segments of the business can be located overseas or small enough that the business is only shipping goods out of the country.

Most businesses know that they could have filing requirements in the foreign countries to pay taxes on net income, but some may also have a filing requirement in the United States if they have a foreign bank account.

According to the Bank Secrecy Act, a business or individual (Taxpayer) must file a FBAR if they have a foreign bank account or signature authority over a foreign bank account. This informational return is filed on FinCEN Form 114 (Form) and does not impose any taxes. The Taxpayer must file one Form for each account unless the Taxpayer has more than twenty-five, in which they only need to file one. When filing the Form, it is most important to know the maximum dollar amount in each account during the entire year as it must be reported unless the Taxpayer has more the twenty-five. It can be difficult to generate these at the end of the year, so it could be a best practice to look at the balances throughout the year.

If the Taxpayer does not report their foreign bank accounts, penalties can vary from $10,000 a year if the failure to disclose is non-willful up to 50% of the entire foreign account balance if it is willful. As can be seen in Monica Toth’s recent court ruling, it is not difficult for an individual to move into the “willful” category of this penalty. Once this happens, it is especially difficult to fight this in court, as the First Circuit Court, the District Court of Massachusetts, and the US Supreme Court all stated the 50% penalty could not be tried in court under the excessive fine clause. Due to this, she owes the IRS a penalty of about $2 million for neglecting to disclose the foreign bank account that had roughly $4.2 million in it.

If you have a foreign bank account and would like help disclosing it to the IRS, contact your DSWD trusted advisor