These days it has become common for businesses and individuals operating in the international sphere to keep funds available in a foreign bank to make their cross-border operations easier. The U.S. Treasury tracks these funds by obtaining details from international banks holding the accounts of U.S. residents. Further, it requires U.S. residents to report these funds using an FBAR (Report of Foreign Bank and Financial Accounts).
FBARs must be filed by U.S. residents that either have signatory authority or a financial interest in a foreign bank account worth more than $10,000. The filing obligations may extend to flow-through entities if a U.S. resident owns more than 50% of that entity. This does not include foreign banks that have a branch in the U.S.
Not filing an FBAR can lead to severe civil and/or criminal penalties. A non-willful failure to file violation can cost up to $10,000 for each incident. If it is willful, the civil penalty can be up to $100,000 or 50% of the value of that account. Further, criminal liability can be up to $250,000 and/or five years in jail. Finally, if any other law has been willfully violated along with the willful non-filing of the FBAR, then criminal penalties can reach up to $500,000 fine and/or 10 years in jail.
Some U.S. taxpayers are under the impression that their accounts in foreign banks not subject to the federal income tax. This is often not true. If you find yourself with undisclosed foreign accounts, we advise that you reach out to a tax attorney who specializes in international tax issues. Once you retain an attorney, your conversation is protected under attorney-client privilege. You can also reach out to our office at (201) 620-1482 or click here for a free case evaluation and to speak with an international tax attorney.
