FBAR Filings are on the Rise
IRS efforts toward offshore tax compliance are working. Filings of the FBAR (Report of Foreign Bank and Financial Accounts) have increased an average of 17% per year over the last five years, resulting in record high filings of over one million in 2015, according to statistics from the Treasury Department’s Financial Crimes Enforcement Network (FinCen).
Any U.S. taxpayer with interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the year is required to file FinCen Form 114, Report of Foreign Bank and Financial Accounts (more commonly referred to as the FBAR).
“Taxpayers here and abroad need to take their offshore tax and filing obligations seriously,” said IRS Commissioner John Koskinen, as reported on the IRS website. “Improving offshore compliance has been a top priority of the IRS for several years, and we are seeing very positive results.”
Over the last 9 years the IRS has taken measures to increase pressure on U.S. taxpayers, as well as foreign banking institutions, to report foreign holdings by U.S. citizens. Earlier this year, UBS Bank of Switzerland submitted bank records of a U.S. citizen in response to a federal court order. In another court case, two Cayman Island companies were found guilty of conspiring to hide over $100 million of U.S. taxpayer money from the IRS. The Cayman Islands case was the first to convict non-Switzerland financial institutions
Penalties for not filing an FBAR vary based on the cause, but the civil penalty for non-willful failure is $10,000. At Krozel Capital, our clients are not individuals hiding money overseas fraudulently. They are honest US taxpayers that happen to have non-US financial holdings either due to living abroad or being citizens of other countries but now living in the US. Unfortunately, the strict IRS rules apply to all taxpayers and it is important to know and comply with offshore filing requirements as the penalties for not doing so can be severe.