FBAR

NON-U.S. INVESTMENT ACCOUNTS

Or FBAR

 

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is now the same as for a federal income tax return. This means that the 2016 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 18, 2017. FinCEN will grant filers missing the April 18 deadline an automatic extension until Oct. 16, 2017 to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.

FILING REQUIREMENTS

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account and the highest aggregate value of these accounts exceed $10,000, you are subject to FBAR reporting. Nor IRS nor FinCEN has indicated whether PayPal accounts qualify for FBAR reporting, however, we strongly believe that taxpayers should disclose them. PayPal Europe is duly licenced as a Luxembourg credit institution and therefore falls within the scope of foreign financial institution.

In a case United States v. Hom federal district court of California upheld an FBAR penalty asessment against an individual who failed to report his interest in a FirePay, PokerStars and PartyPoker account. The Court has held that the term "financial institution" is to be given a broad definition. A “person acting for a person” as a “financial institution” or a person who is “acting in a similar way related to money” is considered a “financial agency.” The Fourth Circuit found that “[b]y holding funds for third parties and disbursing them at their direction, [the organization at issue] functioned as a bank [under Section 5314].”

31 U.S. Code § 5312 gives a definition of "financial insitution":

“financial agency” means a person acting for a person (except for a country, a monetary or financial authority acting as a monetary or financial authority, or an international financial institution of which the United States Government is a member) as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to money, credit, securities, gold, or a transaction in money, credit, securities, or gold.

“financial institution” means—

  1. an insured bank;
  2. a commercial bank or trust company;
  3. a private banker;
  4. an agency or branch of a foreign bank in the United States;
  5. any credit union;
  6. a thrift institution;
  7. a broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934;
  8. a broker or dealer in securities or commodities;
  9. an investment banker or investment company;
  10. a currency exchange;
  11. an issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments;
  12. an operator of a credit card system;
  13. an insurance company;
  14. a dealer in precious metals, stones, or jewels;
  15. a pawnbroker;
  16. a loan or finance company;
  17. a travel agency;
  18. a licensed sender of money or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system;
  19. a telegraph company;
  20. a business engaged in vehicle sales, including automobile, airplane, and boat sales;
  21. persons involved in real estate closings and settlements;
  22. the United States Postal Service;
  23. an agency of the United States Government or of a State or local government carrying out a duty or power of a business described in this paragraph;
  24. a casino, gambling casino, or gaming establishment with an annual gaming revenue of more than $1,000,000 which—
    1. is licensed as a casino, gambling casino, or gaming establishment under the laws of any State or any political subdivision of any State; or

2. is an Indian gaming operation conducted under or pursuant to the Indian Gaming Regulatory Act other than an operation which is limited to class I gaming (as defined in section 4(6) of such Act);

  1. any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity which is similar to, related to, or a substitute for any activity in which any business described in this paragraph is authorized to engage; or
  2. any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.

We therefore strongly suggest that you disclose all of your financial accounts, including PayPal and online gambling accounts.

U.S. taxpayers with investments (i.e. bank savings and checking accounts, investment accounts, PayPal account etc.) outside the U.S. with an aggregate value exceeding $10,000 at any given moment throughout the year are required to disclose any and all accounts to the U.S. Department of Treasury.

The FBAR forms need to be filed separately from the tax returns and each taxpayer needs to file a separate FBAR form. So even if you are filing jointly on your tax returns, you each file a separate FBAR.

 

 

Example A:

 

You have 3 bank accounts in the Netherlands and an inactive account in the U.K. from when you lived there 4 years ago. The highest account values during the year per account are:

  1. ABN AMRO personal account: highest registered account value EUR 11,678;
  2. ABN AMRO savings account: highest registered account value EUR 2,500;
  3. ING Bank account: highest registered account value EUR nil;
  4. Barclays Bank checking account: highest registered account value GBP 13.89.

In example A, the highest aggregate value of your foreign accounts exceeded the $10,000 during the year. Therefore you will need to disclose all 4 accounts to the U.S. Department of the Treasury.

Disclosure is made by completing and filing Form F114 (FBAR) indicating

  • Maximum value of the account during the year;
  • Bank Account number;
  • Details of the account holder or account holders;
  • Name of bank or financial institution;
  • Address of the bank or financial institution.

 

Example B:

You have 5 bank accounts in the Netherlands. The aggregate value of the bank accounts exceed the $10,000 during the year. The ownership details are as follows:

  1. ABN AMRO personal account: registered in your name only;
  2. ABN AMRO savings account: registered in your name only;
  3. ABN AMRO personal account: registered as a joint account for you and your spouse;
  4. ABN AMRO investment account: registered as a joint account for you and your brother-in-law who is not a US taxpayer;
  5. ING Bank account: registered in your spouse’s name only;

In example B, you will need to file an FBAR form listing accounts 1, 2, 3 and 4. Your spouse will need to file an FBAR form listing accounts 3 and 5. So both you and your spouse need to separately disclose the joint account 3 even though the other is already disclosing this.

***

The accounts are disclosed by categorizing each account according to ownership:

Category I - accounts held separately

Category II - accounts held jointly

Category III - accounts where you have signature authority

 

Example C:

You have 5 bank accounts in the Netherlands. The aggregate value of the bank accounts exceed the $ 10,000 during the year. The ownership details are as follows:

  1. ABN AMRO personal account: registered in your name only;
  2. ABN AMRO personal account: registered as a joint account for you and your spouse;
  3. ABN AMRO investment account: registered as a joint account for you and your brother-in-law who is not a US taxpayer;
  4. Rabobank account: registered in the name of your Dutch employer, however, as you work in accounts payable you have signature authorities for amounts up to EUR 1,000;

In example B, you will need to file an FBAR form listing

  • account 1 as a Category I account;
  • account 2 as a Category II account, and disclose full details of your spouse;
  • account 3 as a Category II account, and disclose full details of your brother-in law;
  • account 4 as a Category III account, and disclose full details of your Dutch employer;

***

There are no tax consequences to filing the disclosure forms however not filing the FBAR forms can lead to severe penalties. If you fail to properly file the FBAR form you may be subject to a civil penalty not to exceed $10,000 per violation. However, if you willfully fail to report an account information you may be subject to a civil monetary penalty of $100,000 or 50 percent of the balance in the account at the time of the violation whichever is greater.

The FBAR can only be filed electronically through: http://bsaefiling.fincen.treas.gov/main.html.

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