FBAR Changes Could Significantly Increase Regulatory Burden on Individuals, Financial Institutions
Report of Foreign Bank Accounts (FBAR) is a foreign asset disclosure obligation that has existed since the 1970s. However, while the rule was only sporadically enforced in its early days, today enforcement is strict and rigorous. U.S. taxpayers, including expatriates, who fail to disclose offshore accounts and assets can face serious penalties for their nondisclosure. Unfortunately complying with FBAR filing and disclosure obligations can be complex and highly dependent on your particularized circumstances. FinCEN has issued a rulemaking statement that was intended to simplify this process, but a number of commenters and watchdogs have opined that these changes may have the opposite of the intended effect and further complicate compliance efforts while increasing the regulatory burdens. If you have questions regarding your FBAR obligation or changes to FBAR requirements, Ted Kleinman of U.S. Tax Help is dedicated to assisting expats and other U.S. taxpayers with their compliance efforts. To schedule a no-cost initial consolation at U.S. Tax Help schedule an appointment today or contact Ted online.
Who Is Required to File FBAR?
In general, all U.S. taxpayers can have an FBAR disclosure obligation that can only be satisfied by filing FinCEN Form 114 online. That is, an FBAR obligation can exist regardless of whether you live in the U.S. or abroad. Furthermore, unlike the FATCA disclosure obligation, the balance threshold that triggers a filing obligation is not adjusted on the basis of one tax filing status or whether one lives in the United States or abroad. Rather, a filing obligation exists for most individuals having financial interests in or signature authority over foreign financial accounts that aggregate to values greater than $10,000.
How Would the FinCEN Rule Making Affect FBAR Obligations?
The FinCEN rule-making proposal would affect certain current FBAR filing exemptions under 31 CFR 1010.350(f)(2). Under FBAR certain qualifying financial officers and financial employees holding signature authority over but no financial interest in foreign accounts can qualify for an FBAR exemption. However, FinCEN is considering replacing the current exemptions with a single new exemption. This exemption would apply to officers and employees of any entity. However, the exemption would only apply provided that the entity files an FBAR of its own on the foreign accounts. To enable officers and employees to derive the benefit from this exemption, U.S. banks, financial institutions, and other employers would be required to create and maintain lists of all officers and employees holding signature authority over foreign financial accounts for a minimum of five years. These lists would need to be made available to FinCEN upon request.
Furthermore, the changes would also affect the current rule where when a person or entity has signature authority over, or a financial interest in, 25 or more foreign financial accounts. In these situations, the person or entity is permitted to only report the number of accounts and other identifying information but is exempted from providing detailed account information. The proposed rule would require all U.S. individuals with an FBAR reporting duty to disclose detailed account information on all reportable foreign financial accounts
The American Bankers Association and the Securities Industry and Financial Markets Association noted in a May 9, 2016, joint letter to FinCEN that this change would predicate the employee exemption provision upon, “whether the account is required to be reported by the employer or a related entity within the employer’s group. In the joint letter the organizations state that, “Because not all accounts that a financial institution maintains are required to be reported by the entity, this narrowing of the exemption would result in numerous bank, broker-dealer, and asset management employees having to report on thousands of accounts from which they are currently exempt or have received a deferral.” Additionally, this already burdensome potential filing obligation would be made significantly more burdensome by the more detailed reports required under the new rule.
To mitigate the potential effects and burdens imposed by the new rule the organizations request FinCEN to grant a permanent waiver for those employees who had previously received an exemption. It further states that the employee list requirement is burdensome and would provide FinCEN and the IRS little new or additional useful information. The organizations state that the 25-account rule should be retained.
CPA Ted Kleinman Provides Experienced Foreign Tax and FBAR Compliance Services
FBAR obligations are already complex and multifaceted inquiries. The new rules have the potential to further complicate and expand one’s obligation duties. If you are seeking guidance on your FBAR compliance contact US tax accountant Ted Kleinman at U.S. Tax Help today by calling (541) 923-0903.