Tax-Expatriation

Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.

Posted on April 3, 2014 Updated on April 25, 2015

USCs and LPRs who reside exclusively outside the U.S. are nevertheless subject to reporting in the U.S. of their bank and financial accounts within their country of residence (or any other accounts in another country outside the U.S.).  For instance, a USC residing in France with accounts in London and Geneva is subject to these reporting requirements, in addition to her accounts in France.

A LPR residing in Sao Paulo, Brazil with accounts in Brazil and Uruguay are also subject to these reporting requirements for the Brazilian and Uruguayan accounts.

The law  is obligatory.  See, FOREIGN BANK ACCOUNT REPORTS – 2011 REGULATIONS EXTEND RULES TO MANY UNAWARE PERSONS, published in the International Tax Journal.

Specifically, Title 31, Section 5314 imposes the reporting requirement. The Title 31 regulations used an entirely different law, Title 26 – the Internal Revenue Code, and its definition of who is a “resident” contained in Internal Revenue Code Section 7701(b).  Some have questioned the legal authority of the Treasury Department’s ability to utilize provisions of one federal statute  and incorporate it into a completely different federal statute, without having statutory authority to do so.

Nevertheless, there are some key provisions in the law worth taking note:

1.  Statute of Limitations. There is a statute of limitations whether or not an FBAR was filed.  Hence if a USC neglected to file an FBAR for the year 2006, for instance, the time period for the government to assess penalties has lapsed.  See, When does the Statute of Limitations Run Against the U.S. Government Regarding FBAR Filings?

2. Duplicate Reporting.  FBARs are often duplicate with tax provision reporting – specifically, IRS Form 8938.  See,USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms and USCs and LPRs residing outside the U.S. – and IRS Form 8938

3. No Statute of Limitations.  Although the law that creates FBARs does have a statute of limitations, there is no time limit against the IRS to assess income taxes and tax penalties when the taxpayer does not file tax information returns, such as IRS Form 8938.

4.  FBAR Penalty is Elective.  The imposition of the FBAR penalty is not mandatory under the statute, which provides the government the power to may [not shall] assess a penalty.  The relevant statutory provision is that “The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.”  31 U.S.C. Section 5321(a)(5)(B)

5.  Collection Mechanism by Government is Limited.  The collection of the FBAR penalty is not as easily collected under the law, as is a tax claim.  A Title 26 tax lien and levy claim against the taxpayer’s property cannot be used to collect an FBAR penalty.  Instead, the government has rights of set-off and will typically be required to bring a judicial action in Court to enforce the penalty assessment.  See, U.S. vs. Williams, where the government sued to collect the 50% FBAR willfulness penalty.

6.  All FBARs must now be filed electronically.  The filing of the FBAR form is not with the IRS, but rather with FinCEN.  It must now be filed electronically on Form 114, Report of Foreign Bank and Financial Accounts  through the BSA E-Filing System website.  The electronic form supersedes TD F 90-22.1 (the FBAR form that was used in prior years).

For a good overview of additional aspects of the law, see, Jack Townsend’s federal tax crimes blog and the guest blog written by Robert Horowitz – Guest Blog: Litigating the FBAR Penalty in District Courts and Court of Federal Claims (3/31/14)

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