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Karen Nakamura
Karen Nakamura

Foreign bank account reporting

FBARs must now be e-filed. Here’s what practitioners need to know to comply.

April 24, 2014
by Karen M. Nakamura, CPA

FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR, formerly Form TD F 90-22.1), is used by the Financial Crimes Enforcement Network (FinCEN), an agency of the Treasury Department, to track the worldwide movement of money controlled by U.S. persons. In doing so, FBARs allow the U.S. government to gather information that could be used in criminal, tax, and other regulatory matters and to conduct intelligence or counterintelligence activities. FBAR reporting was established under the Bank Secrecy Act (BSA) of 1970, P.L. 91-508 (Title 31).

Potential FBAR filers are U.S. persons, commonly referred to as account holders, including a citizen/resident, corporation, partnership, or trust/estate with a financial interest in or signature authority over any foreign financial account (i.e., an account outside the United States) with more than $10,000 in aggregate value in a calendar year. In addition, FBAR filers include individuals (e.g., a business’s officers and employees) with a financial interest in or signature authority over any nonpersonal foreign financial accounts (e.g., business bank accounts).

An individual, such as an employee with signature authority over an employer’s foreign financial accounts as well as a financial interest in personal foreign financial accounts, must report both the business and individual accounts on a personal FBAR. The business entity’s timely filed FBAR does not obviate the individual’s need to file a personal FBAR to report the business accounts over which he or she has authority.

An FBAR for an individual must be filed on a separate return basis. Account holders may not file a joint FBAR even when filing joint federal income tax returns. However, under the regulations, Form 114 instructions, and the Internal Revenue Manual, a spouse who has only a financial interest in a joint account that is reported on the other spouse’s FBAR does not have to file a separate FBAR. In general, a domestic corporation with an FBAR filing requirement can file an FBAR on a consolidated basis with other domestic entities in which it has an ownership interest of greater than 50%, in terms of vote, value, or control; however, restrictions may apply.

An FBAR is filed with the Treasury through FinCEN’s BSA E-Filing System on the BSA website. As the IRS reminded this month, FBAR e-filing is now mandatory (IR-2014-52).

Reporting/filing obligations. An FBAR is timely filed if Treasury receives it on or before June 30 of the year immediately following the calendar year being reported. The June 30 filing date may not be extended. Failure to timely file a complete and accurate FBAR may result in significant civil penalties, criminal penalties, or both. Civil penalties for failure to comply with the filing requirements can add up quickly. They may include a combination of penalties for negligence, pattern of negligence, nonwillful violations, and willful violations that range, based on the penalty at issue, from $500 per incident to the greater of $100,000 or 50% of the closing balance in the account as of the last day for filing the FBAR.

E-filing mandate. Before July 1, 2013, FBARs were filed using a paper form with Treasury in Detroit. As of July 1, 2013, FBARs must be electronically filed (e-filed) with Treasury via the BSA website. The e-filing mandate applies to FBARs due for the calendar year ending Dec. 31, 2013, and for any late or amended FBARs filed for earlier years.

An account holder other than an individual who chooses to file the FBAR directly with FinCEN must register as an institutional BSA e-filer on the BSA website. Institutional e-filers include both large businesses, such as publicly traded corporations, and small institutions, such as unincorporated sole proprietorships, personal service corporations, or similar small business entities. The term “institution” applies to financial institutions and nonfinancial institutions.

Individual filers are not required to establish an account on the BSA system to file personal FBARs. Further, an employer may assist its employees by submitting FBARs on behalf of its employees through the institutional account established on the BSA website for the employer.

In lieu of directly filing FBARs via the BSA website, an account holder may use the services of a third-party preparer/representative to e-file FBARs on its behalf, upon granting the proper permission. Per the BSA website, an attorney, CPA, or enrolled agent may act as an account holder’s representative. FBARs e-filed by an account holder’s representative are filed using a single BSA e-filing account established for the representative. Certain third-party software packages support e-filing of FBARs.

A representative must sign FBARs prepared and filed on or after July 1, 2013, using the FinCEN-issued, BSA e-filing PIN specific to the representative. In addition, the representative must provide, among other information, his or her taxpayer identification number (TIN) (i.e., preparer tax identification number (PTIN), Social Security number, individual taxpayer identification numbers (ITIN), or a foreign TIN) and firm TIN.

In certain situations, an account holder may file more than one FBAR for an account year where necessary to report account information for different entities. For example, an individual with signature authority over an employer’s accounts as well as a financial interest in his or her personal accounts may file one FBAR to report information about the employer’s accounts and a second, separate FBAR to report his or her personal foreign financial account information. This situation may arise where an employer offers to assist an officer or employee in preparing and e-filing an FBAR to report the business accounts over which the individual has signatory authority but does not include the individual’s personal accounts in the FBAR filed by the employer on the employee’s behalf. Per recent FinCEN FAQs, an individual may e-file more than one personal FBAR to report the employer’s accounts over which he has signature authority separate from the financial interest in his/her individual accounts.

On a similar note, where an individual is an officer (e.g., board member) of one or more entities and has signature authority over the accounts of multiple entities, stand-alone FBARs may be filed to report the different entity accounts over which the individual has authority.

Form 114a, Record of Authorization to Electronically File FBARs, is used to authorize a representative to e-file on behalf of the account holder. The form must be signed by the account holder and the representative in the capacity of a preparer. The account holder and the representative should retain copies of Form 114a in their respective files and must present the form to FinCEN upon request. A separate Form 114a must be received for each account holder for whom the representative will e-file an FBAR. Form 114a requires the account holder to acknowledge its legal responsibility to timely file the FBAR, affirm that the form is true, correct, and complete to the best of its knowledge, and that the representative is authorized to file a Form 114 on its behalf.

BSA website specifics.The BSA website allows an organization that files BSA forms with FinCEN on its own behalf and a representative that files on behalf of account holders to enroll with BSA as FBAR e-filers. In general, enrollment requires a four-step process: (1) selecting a point of contact in the organization to establish an e-filing account and electronically enroll the organization; (2) completing and submitting a supervisory user application; (3) obtaining supervisory user authorization; and (4) downloading the BSA forms viewer.

The point of contact designates the initial supervisory user, which may be the point of contact. The supervisory user is responsible for: facilitating the process of creating additional supervisory user accounts, if needed; facilitating the process of creating general user accounts to give limited access to the site; providing day-to-day oversight of BSA’s e-filing responsibilities; and ensuring system functionality for the organization’s e-filing account. Usually, a general user is the individual who e-files an FBAR on the organization’s and/or account holder’s behalf. In addition, (1) an organization can have multiple e-filing accounts; (2) an e-filing account has one point of contact; (3) an e-filing account can have more than one supervisory user; (4) supervisory users can authorize multiple general user accounts; (5) supervisory users can see only the “metadata” associated with the FBAR that they and/or their designated general users file; and (6) individual general users can see detailed FBAR information only for the FBARs they file.

FATCA/FBAR “overlap.” Sec. 6038D, enacted in the Foreign Account Tax Compliance Act (FATCA), P.L. 111-147, generally requires that certain individuals and domestic entities with specified foreign financial assets in excess of a threshold asset value report those assets on Form 8938, Statement of Specified Foreign Financial Assets, and attach Form 8938 to their federal income tax return at the time of filing. Certain types of assets reported on an FBAR may also need to be reported on Form 8938; however, the information is not identical in all cases because of the different rules, definitions, thresholds, and other requirements under the regimes. While a discussion of the FATCA federal tax rules applicable to the assets and related thresholds is outside the scope of this article, taxpayers are generally required to file Form 8938 where their interest in specified foreign financial assets equals or exceeds $50,000 in value. Individuals taxpayers also must report some of the information reported on Form 8938 on Form 1040, Schedule B, Interest and Ordinary Dividends.

Providing FBAR services. Tax practitioners must carefully evaluate a number of issues before providing FBAR services for their clients. The following is a list of potential issues to consider that, while not comprehensive, provides food for thought:

  • Types of services. A practical first step for any practitioner is determining the types of services that might work best for a specific client. Where a practitioner has an established client relationship, FBAR preparation and e-filing may be appropriate.
  • Permissibility of services. To the extent a practitioner determines that FBAR services meet the definition of a tax service, the practitioner must determine how different regulatory guidelines may affect their ability to provide services. For example, PCAOB Rule 3523 generally provides that a registered public accounting firm is not independent of its audit client if the firm, or any affiliate of the firm, during the audit and professional engagement period, provides any tax service to a person in a financial reporting oversight role at the audit client, or an immediate family member of that person.
  • Contracting considerations. To the extent a practitioner agrees to provide FBAR services, it must ensure that the engagement contracts clearly state the type of FBAR services to be provided for a report year. In addition, the practitioner must provide clear and comprehensive guidance to its clients to ensure that the clients provide the practitioner the requisite information to complete the FBAR. Doing so may require a practitioner to revise its current tax return data collection tool so that it includes information specific to FBARs.
  • Internal controls and procedures. Tax practitioners will need to implement appropriate procedures to ensure that FBARs are reviewed by the practitioner as well as the account holder before filing. In addition, given the fact that an FBAR is filed separately from the regular tax return and has a different filing deadline, practitioners should take note of the difference.
  • Documenting account holder approvals. The FBAR e-filing rules require that a practitioner obtain a timely executed Form 114a e-filing authorization and retain a copy of the form in its records for submission to the IRS or FinCEN, upon request. Accordingly, the practitioner may need to modify its document retention procedures to ensure appropriate documentation is readily available if the IRS or FinCEN requests copies in support of Form 114a.
  • Designating supervisory and general users. Account holders can file FBARs for their own account or via a representative. To the extent a practitioner opts to provide FBAR preparation and e-filing services through the BSA E-filing System, it will need to designate a BSA filing point of contact who may also act as the supervisory user for the practitioner. In addition, the practitioner will need to establish procedures for designating general users. Depending on the size of the practitioner’s firm, it may be appropriate to centralize the issuance of general user accounts.
  • Using third-party software. Practitioners should address FBAR preparation and e-filing processes with their third-party tax software providers, as the preparation and e-filing features and functionality may differ from income tax returns and some providers may not be ready to assist with FBAR preparation and e-filing by the June 30, 2014, deadline.
  • Guiding clients through the process. Anticipating the types of questions that may be asked, the types of services clients may request, and being knowledgeable about FBAR matters will be key to helping clients manage their FBAR reporting obligations. For example, clients that choose to prepare and e-file FBARs on their own may look to an adviser for guidance in registering on and e-filing through the BSA website. In addition, business clients may look to their adviser for help in responding to the FBAR concerns of officers and employees with authority over the business accounts.
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Karen M. Nakamura, CPA, MST, is a director of state and local taxes at PricewaterhouseCoopers in Washington. She is also on the editorial advisory board of The Tax Adviser.

The author acknowledges the contributions of Stewart Smason, director, and Whitney Lessman, both with Deloitte Tax LLP, in drafting this article.