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Revisiting FBAR filing requirements for US multinationals

USA
27 May 2014

The Report of Foreign Bank and Financial Accounts (FBAR) form is intended to inhibit tax evasion and money laundering while identifying the illegal funnelling of money abroad. While the original purpose of the FBAR was to prevent illegal financial activities, the existing rules for who must file an FBAR arguably go beyond the scope of that initial purpose. Taxand USA explains how many US multinational corporations and their employees may have FBAR filing requirements and not even know it.

In 2013 the Financial Crimes Enforcement Network (FinCEN) announced that it would be implementing a new mandatory e-filing mechanism for FBARs. Form TD F 90-22.1 which has been used by US persons to report interests in foreign financial accounts has been discontinued. Its replacement, the new FinCEN Report 114, is required to be e-filed for 2013 reports and forward and must be filed by 30 June 2014 for the 2013 calendar year.

An FBAR must generally be filed by US persons who have a financial interest in or signature authority over foreign financial accounts. However if the aggregate value of a U.S. person’s foreign accounts does not exceed USD10,000 at any time during the taxable year then no FBAR must be filed. US multinational corporations may be subject to the FBAR filing requirements with respect to foreign financial accounts owned by themselves or their domestic and foreign subsidiaries. Furthermore employees of US multinational corporations may have FBAR filing requirements with regards to foreign financial accounts owned by entities within their global structure over which they have signatory authority.

Historically FBAR filings were due on 30 June using Form TD F 90-22.1 which was mailed to the IRS. While the vast majority of IRS filings must be postmarked by their due date, FBAR filings were required to be received by the Treasury Department on or before 30 June effectively making the due date several days earlier as time in the mail had to be taken into account. Under the new regime the 30 June filing date remains the same but FBARs  must now be e-filed on FinCEN Report 114. Thus an FBAR is submitted electronically and received immediately by the IRS alleviating the concerns of the FBAR reaching the IRS in time via the mail.

Prior to 2014 US persons were not allowed to have someone file an FBAR on their behalf however under the new filing mechanism a third party may be authorised to do so. This is particularly helpful for executives with signatory authority but no financial interest in foreign accounts as it dramatically simplifies their annual reporting responsibilities.

Failure to file an FBAR can carry stiff civil and criminal penalties. If a US person required to file wilfully violates this duty they may be subject to a civil penalty of the greater of USD100,000 or 50% of the foreign account balance. Criminal penalties are up to USD250,000 and/or 5 years in prison. However the IRS has discretion to significantly reduce penalties in cases of non-wilful violation. Such a penalty is capped at USD10,000 per form but may be reduced if the failure to file was due to reasonable cause.

Discover more: FBAR filing requirements for US multinationals


Your Taxand contact for further queries is:
Kristina Dautrich Reynolds
T. +1 202 688 4222
E. kdautrichreynolds@alvarezandmarsal.com

Taxand's Take

Navigating the FBAR filing requirements can be a confusing endeavour. However a complete understanding of these requirements is critical as illustrated by the large penalties that may be imposed for a failure to timely file the form. Although the June 30 deadline is approaching there is plenty of time for corporate tax departments to review whether their company or individuals within their company have a filing requirement and begin gathering the required information. Keep in mind that properly e-filing any required FBARs is well worth the time in order to mitigate the risk of a penalty notice from the IRS.

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