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FBAR: Goodbye Form TDF 90.22-1 and Hello FinCEN Form 114

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The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes. On September 30, 2013, FinCEN posted on their internet site, a notice stating that the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (the current FBAR form) would replace Form TD F 90-22.1 (the old FBAR form used in previous years). If you have a financial interest in, or you are signatory authority over foreign account(s) that total more than $10,000 at any time during the calendar year, you are required to file Form 114 no later than June 30th for the following year. The 2013 Form 144 is due June 30, 2014.

Some of the new features of Form 114 include:

1) The requirement that From 114 must be filed electronically. The old FBAR allowed paper filing but that is no longer the case with Form 114. It must be filed electronically.

2) An option where you can “explain a late filing”. You can also indicate whether the filing is made in conjunction with an IRS compliance program.

The electronic filing system on the FinCEN website is called the BSA E-Filing System (BSA standing for the Bank Secrecy Act) and it allows you to save changes to your form, track progress of the processing of your form and receive electronic notices. Either you or your tax preparer can file this form. By having your foreign account information submitted electronically to the U.S. Treasury, the government will be able to more quickly and effectively match this information to foreign sourced income reported on your current and past Federal income tax returns. Discrepancies would be identified by the government’s computer and those taxpayers would be referred for examination or investigation by the IRS.

The penalties for FBAR noncompliance are stiffer than the civil tax penalties ordinarily imposed for delinquent taxes. The penalties for noncompliance which the government may impose include a fine of not more than $500,000 and imprisonment of not more than five years, for failure to file a report, supply information, and for filing a false or fraudulent report.

With the option for taxpayers to include why this Form for any prior year is being filed late, taxpayers may be tempted to use this process in an attempt to come into compliance for failing to report foreign income on prior year’s income tax returns and/or failing to disclose foreign bank accounts. Beware that such disclosure does not protect you from the heavy fines and possible criminal charges. Instead, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

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