While most people are aware of the importance of the April 15 tax deadline, another important deadline, June 30, is approaching.
Taxpayers with a financial interest in foreign bank and financial accounts with an aggregate value of more than $10,000 at any time during the year must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts by this date.
An extension of time to file an income tax return does not extend the time to file this form, extensions are not allowed. While the purpose of the provisions for this report were to enable the IRS to pursue taxpayers whose intent was to avoid paying taxes by using various offshore transactions and accounts, the reality is many average United States citizens are surprisingly caught by the need to complete the FinCEN Form 114 by June 30. The requirements apply to “U.S persons,” which includes those living in the United States and U.S. citizens living abroad, even if they do not owe any taxes, corporations, partnerships, trusts, limited liability companies and estates. Penalties for not filing can be severe, even for an innocent mistake.
The following are financial accounts subject to FinCEN 114 reporting if the total of all accounts are greater than $10,000 at any point during the year:
• A bank account, meaning a savings or demand deposit, checking, time deposit or other account maintained with a bank in a country other than the United States.
• A securities account, brokerage account, financial instrument account, or mutual fund or similar pooled fund maintained with a person or company in a country other than the United States.
• An insurance or annuity policy with a cash value (such as a whole life insurance policy)
• Retirement accounts maintained in other countries
• Financial interest in the above accounts entails being the owner of record or holder of legal title, having financial interest in the entity that is the owner of record or holder of legal title, having signature authority to control the disposition of the assets in the account by direct communication with the financial institution, or the owner of record or holder of legal title acts as your agent or representative.
Under certain circumstances, a taxpayer may be subject to Financial Crimes Enforcement Network (FinCEN) filing requirements without being aware of, or giving much consideration to the reasons:
• A taxpayer is included on a bank account with a relative in another country. For example, if a U.S. taxpayer has a child or parent living in another country, the taxpayer might be included as a signer on the account without ever giving thought to the fact that they have a foreign financial account subject to the FinCEN rules.
• A taxpayer is a greater than 50 percent direct or indirect owner of an entity with a bank account in a foreign country.
Form 1099-DIV statements that come at year end should be examined closely to determine if they come from an address outside of the United States. If so, the issuer should be contacted to determine if the investments are held outside of the United States.
The penalties for failure to file the required FinCEN 114 are up to $10,000 for a non-willful violation, while a willful violation can subject the taxpayer to fines up to $100,000 or 50 percent of account balances along with possible criminal penalties.
In addition, Form 8938, Statement of Specified Foreign Financial Assets, may have been required with the filing of an individual’s 1040 tax return due April 15 if aggregate fair market values of foreign financial assets exceeded $50,000 on the last day of the year or $75,000 at any time during the tax year ($100,000 and $150,000 for taxpayers filing as married filing jointly).
• Judy Lynn is a CPA/MST with Caufield & Flood in Crystal Lake. She can be reached at 815-455-9538, firstname.lastname@example.org or through the firm’s website, cfcpas.com.