Practice & Procedures
The focus on foreign financial account reporting has continued to increase in recent years. U.S. persons with interests in, or signature authority for, foreign financial accounts greater than $10,000 in aggregate at any time during the calendar year are required to report the existence of these accounts to Treasury, as well as report and pay tax on all taxable income from these accounts (excluding the signature authority accounts) on their personal income tax returns.
Treasury Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), was previously used to report all foreign financial accounts, and this paper form had to be filed and received by the Treasury office in Detroit no later than June 30 of each year to avoid potential late filing penalties. Part 1 on the first page of the form listed the taxpayer’s full name, the type of filer (individual, corporation, etc.), U.S. taxpayer identification number, and the date of birth for individual filers. The form had different sections for reporting foreign financial accounts owned separately (Part II) and jointly (Part III). Both sections required the maximum value of the account in U.S. dollars during the year, the type of account (bank, securities, or other (with a place for a description)), the name and address of the financial institution, and account number. For the jointly owned accounts, the full name and address and the taxpayer identification number of the other joint owner were also disclosed. If a return was filed late, an explanation statement was usually attached to the paper return to demonstrate reasonable cause and help avoid the automatic assessment of a $10,000 civil penalty.
E-Filing Now Required
Treasury announced that beginning July 1, 2013, it would no longer accept a paper-filed Form TD F 90-22.1. Effective Oct. 1, 2013, this form was replaced by FinCEN Form 114, Report of Foreign Bank and Financial Accounts, which now must be filed on the website of Treasury’s Financial Crimes Enforcement Network (FinCEN) through its Bank Secrecy Act (BSA) E-Filing System. This revised form is different from the original version in that it has a place to include the reason for a late filing and now includes preparer information. The annual filing deadline remains June 30. The Form 114 instructions clearly define who is considered a U.S. person, what types of accounts should be reported, what constitutes signature authority, etc.
Form 114a, Record of Authorization to Electronically File FBARs, is a new electronic filing authorization that clients must complete before their FBAR is filed online and that preparers must keep in their files in case FinCEN ever requests it. Form 114a is available here.
FinCEN Registration Process
Clients may register personally to file their own FBAR, but most firms would rather file on behalf of their clients, just as they do in electronically filing income tax returns. Some tax preparation software packages have updated their systems to electronically file the FinCEN Form 114 directly through the BSA E-filing system. However, if a software provider has not updated its e-filing system, in order to file FBAR returns on behalf of clients, a firm must register designated users as preparers or filers at the BSA E-Filing System home page. A preparer is the person who completes and saves the return online, and the filer is the individual normally responsible for e-filing tax returns.
The registration requires the first and last name, phone number, email address, and a desired user ID. Once the initial registration information is submitted, FinCEN sends a follow-up email to each registered user to complete the registration process within five calendar days. Once registration is complete, FinCEN sends another email confirming that the registration is complete and confirming that individual’s user ID. Help with registration is available by contacting the BSA E-Filing Help Desk at 866-346-9478 or email@example.com from 8 a.m. to 6 p.m. ET, Monday–Friday.
Signature Authority Only
On its website, FinCEN has posted FinCEN Notice 2013-1, FBAR Filing Requirement—Extended Filing Date Related to Notice 2012-2, dated Dec. 17, 2013. On Dec. 26, 2012, FinCEN issued FinCEN Notice 2012-2 to further extend the filing deadline for FBARs otherwise due since 2011 from June 30, 2013, to June 30, 2014, for certain officers and employees who had only signature authority over one or more foreign financial accounts (and whose filing deadline had previously been extended twice, to June 30, 2012 (FinCEN Notices 2011-1 and 2011-2) and June 30, 2013 (FinCEN Notice 2012-1)). Because FinCEN continues to receive questions regarding exceptions from filing responsibility for which the previous extensions provided administrative relief, FinCEN Notice 2013-1 further extends the filing due date to June 30, 2015. This extension applies to signature authority held during the 2013 calendar year, as well as all reporting deadlines previously extended by the earlier notices.
Since the reason for filing an FBAR return late is now part of the return, a sufficient explanation should be included for reasonable cause to avoid a civil penalty. A helpful resource is the frequently asked questions and answers on the IRS Offshore Voluntary Disclosure Program. The FAQ number could be referred to in the explanation section as a basis for reasonable cause that the Form 114 is being filed late.
While the content of FinCEN Form 114 is substantially the same as former Treasury Form TD F 90-22.1, there are new sections for including the reason for a late filing and the preparer information. The most significant change is that Form 114 must be electronically filed on the FinCEN website, and paper filings are no longer accepted. The reporting deadline for an interest in a financial account remains unchanged as June 30 of the following year, but the deadline for certain officers and employees with only signature authority has been extended to June 30, 2015, for calendar year 2013, as well as for years extended by previous FinCEN notices.
Valrie Chambers is a professor of accounting at Texas A&M University–Corpus Christi in Corpus Christi, Texas. Mary Cathryn Green is a senior manager with Marcum LLP in Bala Cynwyd, Pa. Ms. Green is a member of the AICPA IRS Practice & Procedures Committee. For more information about this column, contact Prof. Chambers at firstname.lastname@example.org..