The Internal Revenue Service (IRS) has revised Form 90-22.1, Report of Foreign Bank and Financial Accounts, also known as an “FBAR.” Although the FBAR was released in October, it is only required to be used for FBAR filed after Dec. 31, 2008. The purpose of an FBAR is to report a financial interest in, signature authority, or other authority over one or more financial accounts in foreign countries. Failure to file an FBAR can result in criminal tax penalties as well as onerous civil tax penalties. The civil tax penalties can be as high as 50% of the highest balance in an unreported foreign bank account. The FBAR is due on June 30th of each year, and is not filed with the tax return. Instead it is filed with the IRS office in Detroit, Michigan. However, individual filers must check the box on Schedule B of Form 1040 indicating that they have a financial interest in, or signatory over an offshore bank account.
The FBAR has been in the news a great deal lately in light of the IRS’ stepped effort to combat offshore tax evasion. This increased focus on ensuring that U.S. citizens report their offshore bank accounts to the IRS can be seen in several recent developments including the signing of a new tax treaty with Lichtenstein, the indictment of UBS banker Bradley Birkenfeld and the IRS pursuit of holders of UBS Swiss bank accounts. According to published accounts Birkenfeld , who has pled guilty to various tax crimes, is naming names of individuals who held “secret” Swiss bank accounts.
Given the increased probability of being charged with tax fraud or tax evasion U.S. citizens would be well advised to consult a tax attorney to determine whether a voluntary disclosure to the IRS would be the best strategy.