The topic of FBARs (Report of Foreign Bank and Financial Accounts) has been an area of some consternation in recent years with severe penalties for taxpayers who have inadvertently failed to file their FBAR via the FinCEN Form 114.

On 31st July 2015, President Obama signed the Surface Transportation and Veterans Health Care Choice Improvement Act, which despite its name included a number of welcome steps in order to provide more consistency and clarity in the enforcement regime, in conjunction with reporting due date changes.

Since the inception of FBAR in the 1970s, all US residents and entities (corporations, limited liability companies, partnerships, trusts and estates) who have a financial interest in a non-US bank account, are required to disclose their holdings if the value of these accounts exceeds $10,000 at any time during the previous year.

With a historic due date of 30th June, submissions were made separately from US income tax returns. The Act directed the Treasury Department to change the due date of FBAR submissions for US residents from June 30, to April 15, and to change the due date for non-US residents to June 15.

This amendment is a welcomed change and ensures the new deadline is more closely aligned with the US Individual Income Tax Return due date. Congress believes that taxpayers will be less likely to forget their reporting obligation if they only have one filing date.

Taxpayers will however have additional work to do as the due dates have been accelerated by more than two months. The Act also instructs the Treasury to waive any penalty for a first time FBAR offenders.

Further changes were made in May, 2015, when the IRS distributed an internal memorandum to employees providing guidance for the allocation of FBAR penalties that will effectively lessen fines on undisclosed foreign accounts.

Historically, if the IRS found that you willfully failed to disclose overseas accounts, you could owe a penalty of 50% of your total balance or $100,000, whichever is greater, for every year you failed to file an FBAR form (capped at 6 years). So regardless if you had a $20,000, or a $200,000 account, you could potentially be fined up to $600,000.

If your failure is deemed non-willful, then the IRS could impose a penalty of $10,000 a year for every year you didn’t disclose (up to 6 years).

The new memorandum recommends that if you have multiple accounts, you can be fined no more than 50% to 100% of your highest balance. So in the case of a $200,000 account that was not disclosed for six years, instead of having to pay a $600,000 fine, you instead would be fined between $100,000 and $200,000

Taxpayers and tax practitioners must make sure that you comply with the new filing deadlines.

This post was written by Russell Lebe at Accountancy In Europe. Working with businesses all over the world to assist with accounting, tax and FBAR services.

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