Friday, March 09, 2007

DON’T FORGET THE FBAR!

A common trap that new residents to the U.S. often fall into is the lack of reporting of their interests in non-U.S. bank and brokerage accounts. Many new residents continue to own bank or brokerage accounts in non-U.S. districts after moving to the U.S., and/or they own interests in entities that have such accounts.

U.S. citizens and residents who own a foreign bank account, brokerage account, mutual fund, unit trust, or other financial account must file a Form TD F 90-22.1, Report of Foreign Bank and Financial Authority (FBAR), if (1) he or she has financial interest in, signature authority, or other authority over one or more accounts in a foreign country, and (2) the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Penalties for failure to file are steep, to say the least. A willful violation can be subject to a fine of $100,000, or 50% of the balance of the account, whichever is greater. Even nonwillfull violations can accrue $10,000 penalties.

FBAR forms need to be filed by June 30 for the preceding year, and in another trap for the unwary, no extensions are allowed. Therefore, even though a taxpayer may have an extension to file his or her income tax return, the FBAR is not extended.

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