TAX TIPS (and other stuff)

By Kelly J. Bullis, CPA

There is a tax return filing that doesn’t involve paying any taxes, but the penalties for not filing could be devastating.

This is about a report called an FBAR (Foreign Bank and Financial Accounts Report) form 114 that must be filed at the same time as your Federal Income Tax Return every year that you qualify.

The penalty for non-willful failure to file an FBAR is currently $16,538, indexed for inflation. (So, the penalty goes up every year, unlike the limit on taxable Social Security.) Did you notice that little word “non-willful”? That means you plead ignorance, “I didn’t know about Form 114?” There is a different penalty for “willful” violations. (Since you have read this article, you can no longer plead non-willful.) The fine is the GREATER of $100,000 or 50% of the balance in a foreign bank account for each violation. Ouch! If you had $5 million in a Swiss bank account and willfully did not file Form 114, your penalty is $2.5 million. Is that enough? No! The penalties go even higher if the Feds can prove Fraud or deliberately providing false information. Oh! And this also carries potentially up to a 5-year prison term, up to 10 years in prison if the Feds can prove obstruction of justice.

You are required to file an FBAR if the aggregate value of the assets you have sitting in foreign banks or other financial institutions exceeded $10,000 at any time during the prior year. As an example, you may normally carry a balance of only $8,000 in a foreign bank account, but then made a deposit of $2,100, temporarily bumping your balance past $10,000. At that point, you now MUST file an FBAR for that year.

This whole process was designed by Congress to discourage US taxpayers from hiding assets in tax-havens and failing to report taxable income.

The Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department, oversees the operation and coordinates its activities with the IRS.

The Treasury Department has worked hard to get tax treaties with almost every country in the world, allowing them to require foreign banks to annually report bank accounts held by US citizens and the highest balance in such accounts for the year. Then FinCEN matches that information up to the form 114s filed for the year. Any US taxpayer who shows up with such a bank account, who didn’t file a form 114, can expect a letter in the mail, accusing them of a WILLFUL violation of the FBAR reporting. That’s right, the burden is on the taxpayer to prove the issue was non-willful.

FBAR form 114s are filed electronically only. You cannot mail one in. You actually are granted an automatic extension until October 15^th to file for each year. No actual extension needs to be filed. It’s automatic. But don’t miss the October 15^th deadline, or the penalties kick in.

Have you heard? Genesis 4:13 says, “Cain said to Yahweh, “My punishment is greater than I can bear.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. As well as on our website at BullisAndCo.com. You can also find us on LinkedIn and Facebook.