In today’s global economy, it is not unusual for U.S. nonprofit organizations to have financial accounts overseas. Having financial accounts overseas may facilitate international transactions for these organizations. However, they may be required to file a special tax form with FinCen, the U.S. Treasury Department’s Financial Crimes and Enforcement Network. Failure to do so may lead to heavy penalties. This special tax form is commonly referred to as “FBAR” or “FinCEN Form 114, Report of Foreign Bank and Financial Accounts.”
Who Must File the FBAR?
According to IRS, United States persons are required to file an FBAR if they meet these two conditions:
- They had a financial interest in or signature authority over at least one financial account located outside of the United States.
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
The IRS has defined a “United States person” to include “U.S. citizens, U.S. residents, and entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.” The full line item instructions are located at FBAR Line Item Instructions The IRS also has provided an FBAR Guidance page.
New Due Date for FBARs
Through Section 2006(b)(11) of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41 (the “Act”), the new annual due date for filing FBAR for foreign financial accounts was changed to April 15 in order to coincide with the federal income tax filing season.
The Act also mandates a maximum six-month extension of the filing deadline. To implement the statute with minimal burden to the public, FinCEN grants filers failing to meet the FBAR annual due date of April 15 receive an automatic extension to October 15 each year. Accordingly, specific requests for this extension are not required.
Exceptions to the Reporting Requirement
Some U.S. organizations and persons may be exempt from the FBAR filing if they meet any of these following criteria:
- Certain foreign financial accounts jointly owned by spouses
- S. persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRAs
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries, but only if a U.S. person reports the account on an FBAR filed on behalf of the trust
- Foreign financial accounts maintained on a U.S. military banking facility
More details about exceptions to the FBAR reporting requirements can be found in the FBAR instructions.
Failing to File FBAR Reporting
Failure to file FBAR could result into heavy penalties. For violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation.
However, if you have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, you should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why it is late. All FBARs are required to be filed electronically through FinCEN’s BSA E-Filing System. For late filings, the organization should select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If the organization is unable to file electronically, the organization may contact FinCEN’s Regulatory Helpline at 800.949.2732, or 703.905.3975 for those calling from outside the United States, to determine acceptable alternatives to electronic filing.
For more information about filing FBARs, please contact Kevin Tamekloe or one of our nonprofit specialists at 301.231.6200.