20 March 2020 - Events
July 1, 2013 marked the expiration of the general exemption from mandatory electronic filing of the Report of Foreign Bank and Financial Accounts (Form 114, colloquially known as the ‘FBAR’). Recent updates from the Financial Crimes Enforcement Network (‘FinCEN’) make clear that, despite previously contradictory guidance, all FBARs must now be filed online using the BSA E-Filing System.
This article addresses the FBAR filing requirement generally, the sometimes-contradictory e-filing guidance previously issued, and the current state of affairs for FBAR filers.
The FBAR Filing Requirement
Any US person with a financial interest in, or signatory authority over, foreign financial accounts must file the FBAR by June 30th of the following year if, at any time, the aggregate value of their foreign account(s) exceeds $10,000USD. The FBAR gained notoriety in 2008 when UBS, responding to pressure from the US Department of Justice, disclosed the identities of many US holders of Swiss accounts.
Failure to file an FBAR may result in a civil penalty of $10,000 for negligent violations; or the greater of $100,000 or 50% of the account balance for willful violations. Failure to comply with the e-filing mandate may result in an additional $500 penalty.
The Move Towards Electronic Filing
On July 18, 2011, FinCEN announced the development of an optional FBAR e-filing system. While the announcement touted e-filing as ‘quicker, cheaper, more secure, and more reliable,’ the subsequent failure to update the FBAR instructions to include the e-filing option, combined with the system’s incompatibility with tax preparation software, resulted in a chilly reception.
As a result, on September 16, 2011, FinCEN announced that ‘in support of Treasury’s paperless initiative and efforts to make the government operations more efficient,’ the electronic filing of certain BSA reports, including the FBAR, would be mandatory effective June 30, 2012.
Subsequent comments from taxpayers and tax professionals regarding the human and capital investment required to comply with the new mandate resulted in FinCEN recognizing, for the first time, that its paperless initiative may present “ad hoc administrative difficulties.” Accordingly, on February 24, 2012, FinCEN announced a temporary general exemption from the mandate until July 1, 2013.
Life After the E-Filing Mandate
All FBAR filings due June 30, 2014 must be filed using BSA’s e-filing system. Moreover, late and amended FBARs that were due June 30, 2013 must also be filed using the e-filing system. Noncompliance carries a $500 fine per infraction.
It is important to note that the new system does not alter taxpayers’ record-keeping obligations. Taxpayers are still required to retain filings for five years and the e-filing system does not store filings. Accordingly, taxpayers will need to either print and store paper filings or store filings digitally.
Another important caveat is the inability of the e-filing system to accept multiple electronic signatures. This means that spouses who jointly own foreign accounts will need to file separate FBARs unless the following conditions are met: (i) all of the non-filing spouse’s foreign accounts are jointly-owned with the filing spouse; (ii) the filing spouse reports the jointly-owned accounts on a timely-filed FBAR; and (iii) the filers have completed a Signature Authorization Record.