Do you have foreign assets or involved in transactions with a foreign entity?
If yes, it’s your responsibility to know your tax obligations regarding international transactions and foreign entity taxation during your return filing process.
Be it foreign authority issued stocks and bonds or property on foreign land; one can own several kinds of foreign assets. These assets are sources of income for US persons. However, as these assets are foreign entities, the taxation system is very different.
Under such cases, the taxpayer may quickly become non-compliant for the offshore tax liabilities. Taxpayers may be required to pay taxes based on the foreign entity and transaction rules provided by IRS. One of the requirements is Form 114, the FBAR form.
What is the FBAR form, what exactly this document is, and the reason for filing Form 114?
FBAR or Foreign Bank and Financial Accounts Report is a document containing all the transaction details you have made in the current financial year related to foreign financial assets and accounts. Taxpayers file the FBAR electronically through the Financial Crimes Enforcement Network’s BSA E-Filing System. Taxpayers don’t file the FBAR with their federal tax return. If you need to paper-file your FBAR, you need to call FinCEN’s Regulatory Helpline to request an exemption from e-filing. (Reference: https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar#:~:text=You%20must%20file%20the%20FBAR,an%20exemption%20from%20e%2Dfiling)
FBAR violations come from an intentional attempt to high assets or a negligent act of not researching your foreign tax obligations. FBAR violations are penalized severely.
FBAR needs to be filed once the total foreign accounts valuation exceeds $10,000.
The moment you submit the tax return, the entire document is going to be scrutinized thoroughly. During this process, the documents and data incidents are verified, giving away one’s malicious intent of evading the foreign tax liabilities.
Following is the list of some of the documents IRS uses to check the genuineness of your FBAR form.
Penalties range and can be as high as $12,921 or even the greater of $129,210, or 50% of the amount per 31 U.S.C.5321(a)(5)(D)
Streamlined filing compliance procedures to mitigate penalties
Streamlined filing compliance procedures are primarily intended for taxpayers whose failure to report foreign financial assets and pay taxes regarding the assets was not willful. Eligibility for the procedures:
FBAR filing shouldn’t be taken lightly because strict laws protect the Federal government from losses due to incompliance. Getting all the information from your tax preparer about the FBAR filing is crucial so that you can avoid both willful and non-willful violations of the FBAR rules.