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Americans with bank accounts in foreign countries are often required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS. In recent years, the U.S. government has been cracking down on violators of this requirement, with an increasing number of foreign countries agreeing to share information with U.S. authorities.
In 2013 alone, the U.S. government signed agreements with six other countries to cooperate with the Foreign Account Tax Compliance Act (FATCA). These include; Japan, Germany, Spain, Norway, Ireland, and Switzerland. They are currently in negotiations with several other countries as well, including Bermuda and the Cayman Islands.
The increased FATCA enforcement effort has led to some foreign banks ceasing to do business with American customers, as well as an increase in Americans renouncing their U.S. citizenship. But the IRS has also seen the result they were looking for; a large increase in FBAR filings (and collections) as more Americans become aware of the disclosure agreements with foreign countries and filing requirements.
Who should be filing an FBAR? An American individual or entity with a financial interest or signature authority over (at minimum) 1 foreign bank account is required to file an FBAR if the value of all accounts combined exceeded $10,000 at any time during the tax year in question. This filing requirement is not for U.S. citizens alone; U.S. permanent residents, corporations, partnerships, LLCs, and other such entities are also subject to these regulations.
Many immigrants to the U.S. are not aware that they fall within the scope of the FBAR requirements. For example, if you recently received U.S. permanent resident status but much of your family is still in your native country, you may be keeping a good portion of your savings in a foreign account. In addition, you may have already had a high amount of funds in a foreign bank account before immigrating to the U.S. If you are in this situation, there is a good chance that the FBAR requirements may apply to you.
Penalties for Failing to File Required FBAR: If you are required to report a foreign bank account and fail to do so, you may open yourself up to both civil and criminal penalties. On the civil side, fines can be as high as $100,000 or half of your foreign bank account balance, whichever is greater. On the criminal side, you may be prosecuted for not filing an FBAR, tax evasion, and any number of other tax code violations, all of which may carry some prison time.
Failure to report a bank account that falls under the FBAR requirements is serious business. With the U.S. government forging more FATCA agreements each year, it will become increasingly difficult to get away with failing to file. If you have accounts totaling $10,000 or more in foreign bank accounts, speak to a tax professional right away to make sure you file the right forms so you can stay in compliance with this important regulation.