Don't Mess With Taxes

The October filing extension deadline, which falls on Oct. 17 this year since the 15th is Saturday, is less than a week away.

The Internal Revenue Service is waiting on the uber procrastinators to get their filings in by next Monday.

But the IRS isn't the only federal financial office awaiting postponed documents.

FinCEN also demands extended FBAR filings be in by Oct. 17.

Taxable money, but not an IRS issue: FBAR, or Report of Foreign Bank and Financial Accounts, is how FBAR information is the federal government's way of tracking foreign bank and financial accounts owned by U.S. taxpayers.

Although it involves money that might be taxable (the U.S. wants part of all your worldwide income), this report must be filed electronically via Form 114 with the Financial Crimes Enforcement Network, commonly referred to as FinCEN.

FinCEN is the U.S. Treasury Department bureau that collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and per its name other financial crimes.

It's been doing that job, including processing FBAR filings, under authority of the Bank Secrecy Act since 1970.

In 2016, the FBAR filing deadline was changed to coincide with the annual April individual federal tax return deadline. That means it also follows IRS due date rules, which say when a federal income tax deadline falls on a Saturday, Sunday, or legal holiday, the affected filing is delayed until the next business day.

Who has to file a FBAR? Two things trigger the FBAR filing requirement.

The first is the ownership or financial interest or authority over any foreign bank accounts, including those in a branch abroad of a U.S. financial institution. You also could be required to report other non-U.S. holdings such as —

• Investment assets like stock that are held by foreign financial institutions,
• foreign mutual funds, life insurance, or annuity contracts,
• foreign retirement accounts, and
• foreign accounts that you don't own but are able to control.

These accounts generally must be reported even if the accounts don't generate any taxable income.

The second filing trigger is the account(s)' amounts. FinCEN Form 114 is required when then aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. The two key phrases here are "aggregate value" and "any time during the calendar year."

More on FBAR ownership: Financial interest in an asset is determined by who is the owner of record or legal title. Signature authority means that you have some level of control over the assets by direct communication with the institution.

The FBAR law also has a broad definition of person for reporting purposes. Under the law, a U.S. person is a citizen or resident of the United States (including Green Card holders and resident aliens), or any domestic legal entity, such as a partnership, corporation, limited liability company, estate or trust.

As for what constitutes a foreign country, the law says that's any area outside the United States, Indian lands as defined in the Indian Gaming Regulatory Act, and the following U.S. territories and possessions:

• Northern Mariana Islands,
• District of Columbia,
• American Samoa,
• Guam,
• Puerto Rico,
• United States Virgin Islands, and
• Trust Territories of the Pacific Islands.

How much money matters: Whenever the IRS or its parent agency, the U.S. Department of the Treasury, is involved, it's always about the money. As noted earlier, $10 grand is the total that comes into play with FBAR filings.

FinCEN Form 114 is required when the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. The two key phrases here are "aggregate value" and "any time during the calendar year."

FinCEN looks at the cumulative balance, meaning if you have two foreign financial accounts with a combined balance exceeding $10,000 at any one time in the tax year, both accounts would have to be reported.

Then the IRS and FinCEN also bring another consideration into play, maximum value. Uncle Sam wants this amount, too.

The maximum value of an account is a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year. "Periodic account statements may be relied on to determine the maximum value of the account," according to FinCEN, "provided that the statements fairly reflect the maximum account value during the calendar year."

If you have/had a financial interest in more than one account, each account must be valued separately.

When recording the maximum value of accounts, record all amounts as U.S. dollars rounded up to the next whole dollar, regardless of the cents. For example, $25,500.25 in an account at its highest point would be recorded as $25,501.

If an account is in non-U.S. currency, convert the maximum account value into dollars. You can use the Treasury Reporting Rates of Exchange to determine the dollar value of foreign currencies.

What records are needed? You also must keep You must keep records for each account you must report on an FBAR that establish. The information required includes:

• Name on the account, 
• Account number,
• Name and address of the foreign bank, 
• Type of account, and 
• Maximum value during the year. 

The law doesn’t specify the type of document to keep with this information. It can be bank statements or even a copy of the FBAR you filed. Just make sure your documentation has all the necessary data.

You must hang onto these records for five years from the due date of the FBAR.

How to file FBAR: FBAR filing, or specifically FinCEN Form 114, is not filed with the IRS. It's filed directly with FinCEN.

It also must be filed electronically at FinCEN's BSA (Bank Secrecy Act) E-Filing System website. Below is an excerpt of the page you'll see when you head there.

Once you start the Form 114 filing process, note that the online FBAR form does not allow you to save your progress during completion. After you submit it, you'll be able to download a read-only copy of your filing.

If you have problem with or can't file your FBAR using the BSA-E system, contact FinCEN at (800) 949-2732 or [email protected] to request an alternative filing method. FBAR filers living outside the United States can contact the FBAR filing helpline at (703) 905-3975.

And even though it's not an IRS form and it's only filed electronically, FBAR reporting earns a spot on the Talking Tax Forms page.

Not filing can be costly: As with its cousin agency the IRS, FinCEN takes filing compliance seriously. If you fail to provide your foreign account information, you'll pay.

Nonfiling could result in a civil penalty of up to $10,000. The penalty could be waived if you can show reasonable cause for missing the filing.

But if you willfully fail to report an account or don't provide required account identifying information, the penalty price goes up. You could be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.

You also might find these items of interest:

• 4 tax moves to make this October
• Offshore tax loophole helps U.S. tax cheats
• Federal FBAR suit seeks $26 million in penalties

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