USA: US Agencies Impose Bank and Investment Account Reporting on Foreign Nationals and US Expatriates

This Alert applies to:

• Any non-US citizen (i.e., any Canadian, European, Mexican, Brazilian or other country’s citizen) who is a resident alien under US tax laws— generally not only a “green card” resident but also a non-US citizen who has a substantial presence in the US , whether for business or personal reasons;
• Any US citizen who lives and works in a foreign country;
• Any employee employed by a US corporation who manages or has authority over corporate direct foreign investments;
• Any entity-company, partnership, limited liability company, trust or estate, formed or organized under the laws of the US, and
• Any person with dual, US and other-country citizenship, who lives outside the US.

Any non-US citizen present in the US for more than 30 days in the current calendar year must review whether he/she is substantially present in the US under a multi-step test. The FBAR rules expand the definition of the US to include not only the 50 States and the District of Columbia, but all US possessions and territories and Indian lands. Thus, entities not otherwise subject to US tax or disregarded for US tax purposes may still have a FBAR obligation.

Any of these persons who have signatory or other authority over non-US bank, investment, cash value life insurance, annuities or other accounts with $10,000 or more in value, whether for business or personal use, during the year must file a “Foreign Bank Account Report” or “FBAR” with the US Treasury by June 30th of each year. These individuals have an FBAR reporting obligation whether or not they must file US tax returns. The obligation to file FBARs result from a broad interpretation of one portion of the US Bank Secrecy Act by the US Financial Crimes Enforcement Network (FinCen) and the US Treasury. Penalties for non-filers of FBAR include civil penalties of up to 50% of the aggregate of all non-US account values and, for willful evaders, criminal penalties.

The IRS currently accepts voluntary disclosure and late FBAR filings, which reduces penalty exposure for qualifying participants from 50% to 5% of the foreign account’s value. IRS publications flatly state that individuals who attempt “quiet disclosure” via some method other than the submission of an FBAR report or participation in the IRS voluntary disclosure program will be treated as willful non-filers.

Resolution of FBAR issues involves strategies aimed at correcting any missing FBAR filings for minimal negotiated penalties and working through political channels to correct FinCen and the US Treasury’s overly broad application of the US laws. Employers and individuals who need assistance with FBAR issues or desire more information may contact Kathleen Barrow or Stephan Swinkels at the telephone number or e-mail address shown below.