(Note: This post was originally published on Taxes for Expats, a partner of Sydney Moving Guide.)
Due to recent changes, the FinCEN Form 114 (FBAR) due date was moved from June 30th to April 15th. As anyone who has filled out this form knows, this form requires declaration of all non-US financial accounts and the highest balance for each account during the year. Even though this sounds like an easy question to answer, it can actually be quite complex if transfers between accounts occur during the year. This article will address the frequently asked questions related to this issue.
I have transferred funds between accounts; do these balances get counted twice?
Simply put, yes.
But don’t be too concerned. It is understandable if you don’t want to appear to have more assets than you actually have, but the government is not going to give you extra scrutiny for the differences between USD 550,000 and USD 700,000. The US Department of the Treasury is aware that transfers can cause funds to be double counted.
The regulations require you to report “the maximum account value of each account” within the timespan of the FBAR reporting period. Notice that there is no reference to tieing out the balances to the total worth.
So, not only do you not need to adjust your balances to avoid double counting, but in reality it is not the correct way to do it. It is the maximum account balance of each account that must be reported.
It feels wrong to double-count my funds. Are there consequences of doing this?
Remember – FBAR is purely an informational form and there is no tax assessed on the amounts reported. Therefore, reporting the transferred funds twice does not have any financial consequences. Think of it from a different angle – there is no financial benefit to reporting a low account value, and to do so would actually be a violation of the law. The point of the FBAR is simply to report the actual highest value during the year.
Failure to properly report eligible accounts can lead to FBAR penalties. The IRS and Treasury retain the right to impose penalties for Willful violations:
- The ceiling for penalties is the greater of $100,000 or 50% of the balance in the account at the time of the violation.
- Failure to properly report and maintain records may lead to a violation regarding each account.
In summary, if you filed your FBAR before the deadline, don’t worry. If you need help, or have questions, please contact us (Be sure to use the SMG referral code to get $75 off). We have experience working with United States taxpayers throughout the world.
You mention Willful violations – what does that actually mean?
The IRS commonly refers to this term in determining penalties. The IRS has developed guidelines and allows examiner’s discretion to arrive at the amount of penalty for a willful violation.
- The test for willfulness is whether the taxpayer exhibited voluntary and intentional violations of known laws.
- If willfulness is found, the claim must be supported by evidence and the burden of proof is on the IRS.
- If it is determined that the person knows that a reporting requirement exists, to prove intent there must be a conscious choice not to file the FBAR.
Do not forget about “Willful Blindness” – making a conscious effort to avoid learning about FBAR requirements willfulness is attributed to a person who made a conscious effort to avoid learning about the FBAR reporting and recordkeeping requirements.
How does Schedule B tie in?
Although your FBAR is filed outside of your tax return and sent to the treasury, your tax return (in particular, Schedule B) may be used to help determine willfulness.
The instructions of Schedule B provide guidance on taxpayer responsibility to report non-US financial accounts and discusses the duty to file FBAR.
These resources give ammunition to the IRS in proving that the taxpayer could have learned of the filing requirements of FBAR. The IRS’ position is that it is a reasonable assumption that if you have non-US bank accounts you should read the information provided by the government in tax forms.
On a standalone basis it may be difficult for the government assessor to assess penalties from one infraction. However, failure to learn of filing requirements, coupled with efforts to conceal the accounts may lead to the conclusion that the violation was (blindly) willful. Simply checking the wrong box or no box on Schedule B is not sufficient.
As described in this article – the biggest infractions come from failure to accurately report (and/or conceal) non-US financial accounts. Always report the highest balance in the account throughout the year, even if it was only for a short time period due to movement between accounts.
About the Author: I.J. Zemelman, EA is the founder of Taxes for Expats.