As another tax season quickly approaches, foreign bank account holders should be aware of new filing deadlines regarding Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
Background
Any taxpayer holding a foreign bank account, or signature authority over a foreign bank account, with a value over $10,000 at any point during the year, must file FBAR Form 114. The highest balance at any point during the year, converted to U.S. dollars using the appropriate Treasury Financial Management conversion rate, is reported for each bank account. It is important to remember it is the “highest balance at any point during the year” and not the ending balance that is reported. Although the ending balance might be the highest, this is often not the case. These aforementioned requirements have not changed in the past few years. What has changed is the due date.
Change in Due Dates
In previous years, Form 114 was due June 30 each year and extensions were not available. Taxpayers had to not only remember when their individual return was due but were also encumbered with this additional reporting deadline. Changing the deadline had been a major topic in Congress for years, and a resolution has finally been enacted. Beginning with this filing season, all Forms 114 are now due with an individual’s income tax return (Form 1040). This means that all FBARs for the 2016 tax year will be due April 18, 2017, a few months earlier than planned. Even better, extensions are available for FBARs. If you extend your individual return, you also extend your FBAR return to October 15. This means that instead of spending your summer complying with FBAR reporting, you can finally take that vacation you always wanted.
Late Filing Penalties
As with any return, there are late filing penalties associated with FBARs. These have not changed with the new reporting deadline. Failure to timely file an FBAR can result in civil, and possibly criminal, penalties. For non-willful violations, you can be imposed a civil penalty of up to $10,000 per year. For willful violations, the civil penalty increases to the greater of $100,000 or 50% of the balance in an unreported foreign account, per year, for a maximum of six years. You may also face criminal penalties of up to $250,000, five years in federal prison, or both.
Penalty Relief
When there is a change in due date, there are bound to be some late filings. The good news is that the IRS offers multiple penalty relief programs for FBAR reporting. Relief is available for first-time filers who miss the due date, waiving penalties in this case. If you have missed the deadline, file a delinquent FBAR as soon as possible with a delinquent filing statement.
The IRS will not impose a penalty for failure to file a delinquent FBAR provided the following two requirements are met:
- All interest income from your foreign accounts has been properly reported on your Form 1040
- You are not under examination and have not been previously contacted about your delinquent FBARs
Final Thoughts
Remember, Form 114, Report of Foreign Bank and Financial Accounts (FBAR), is now due April 15 every year and can be extended to October 15 with a Form 1040 extension. When planning for the tax year, make sure to keep all foreign bank account information and other 1040-related information together so these two forms can be filed together. Following this small step could help alleviate major complications from late filing later on.
Have questions about the FBAR deadline or other tax-related issues? Please contact Lesley L. Price, CPA at (334) 887-7022 or by leaving us a message below.
