Who Must Use This Form?

This is a five page form, with three pages of instructions, that is used to disclose the identity of and location of any foreign financial accounts with a balance (for all accounts combined) of more than $10,000 at any time during the prior calendar year. A copy of the form is available from the IRS at http://www.irs.gov/pub/irs-pdf/f90221.pdf

What Information Is Required?

The form requires taxpayer (filer) identification information (name, address, SSN or TIN, date of birth) and the number of foreign financial accounts. For each financial account, the form requests a description of the type of account, the highest value in the account during the calendar year, the account number, the name of the institution, the country where the account is located and the name of the organization (corporation, partnership, trust or estate) if the form is being filed by an organization.  In a dubious attempt to make it easier for taxpayers, the form has separate sections for (1) financial accounts owned separately, (2) financial accounts owned jointly, (3) financial accounts where the filer only has signature authority over the account and (4) financial accounts where a corporate filer is submitting a consolidated return. There is no specific section for accounts that are owned by an entity that is controlled by the filer. It seems those should be reported in the section for accounts owned separately. 

When Is It Due?

This form is due at the office (or P.O. box) of the Treasury Department in Detroit on or before June 30th of the year following the calendar year. Unlike a tax return, this form is not filed on time when it is put in the U.S. postal system on time. And, this form is not part of an income tax return and is sent to a separate part of the Treasury Department. 

Where Should It Be Filed?

The form should be sent to the U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI  48232-0621

How Long Does It Take To Prepare?

For those with a single foreign financial account, it may take less than 15 minutes to complete the form. Additional time will be required for each additional financial account. However, organizations or investors with more than 25 separate accounts can check a box on the form without listing each account unless or until a list is requested. 

Why Comply ? (Penalties)

According to the instructions to the form, "Civil and criminal penalties, including in certain circumstances a fine of not more than $500,000 and imprisonment of not more than five years, are provided for a wilful failure to file a report, supply information, and for filing a false or fraudulent report". (31 CFR 103)  Hower, penalties for a willful failure are rare because of the difficulty of proving intent. So there is a penalty of up to $10,000 for each account that is not reported or is reported late even if the failure is non-wilful. If there are five separate accounts that add up to more than $10,000, then the penalty could be as much as $50,000 per year for a late filing of the form. However, the total penalties are not supposed to exceed a certain amount based on the total value of the accounts. 

Comments

The exact filing requirements are provided in the instructions to the form, but in general, the form must be filed if you had any combination of  "foreign financial accounts" in the prior calendar year with a combined value of $10,000 or more at any time during the prior year. Generally, a foreign financial account includes a bank account, savings account, money market fund, demand deposit, securities account or similar account. There are a few exceptions, but any US person who may have any possible obligation to file this form should carefully read the instructions to the form. If there are questions that are not answered by the form, answers may be available in our 180 page Guide to Reporting Foreign Financial Accounts.

Generally, “financial interest” includes interests in Foreign Accounts titled in the names of nominees, agents, and trusts if the beneficial interest in the trust exceeds 50% in corpus or income.  “Signature authority” includes control of the disposition of the Foreign Account by oral or written instructions to the signatory or titleholder on the account.

This form may also be required by those who are shareholders, officers or directors of foreign corporations, partners in foreign partnerships, grantors of foreign trusts or beneficiaries of foreign estates or trusts. A foreign trust account may require the signature of both the trustee and a trust protector s well as the trust grantor.  

Policy owners of foreign annuity or life insurance contracts may not have any authority over the management of the cash values in the policy, but the IRS regards the access to the cash values as a financial interest in the annuity or life insurance policy. 

A mere transfer to a foreign bank or financial account may not be subject to disclosure if the amount is less than $10,000 at all times during the year for all accounts - combined. In addition, the temporary transfer of funds to a bank to be paid to some third party does not constitute an "account". 

Can one buy certificates of precious metals and transfer the certificates offshore without reporting?  A certificate (of ownership) of precious metals is personal property, not the underlying hard metal. However, if the metals are held in unallocated storage or are available for immediate conversion into dollars or other currencies, it seems highly likely that the IRS will construe that to be a foreign financial account. If physical bullion or coins are purchased and stored in a vault, it is not clear what the IRS position will be. However, if the bank does not have unrestricted access to the vault without the presence of the owner of the bullion or coins, then the current instructions to the FBAR form and related information on the IRS web site suggests that the storage arrangement would not have to be reported. However, there is no explicit instruction from the IRS with regard to certificates of ownership or physical storage or precious metals.

Valuables or documents purchased outside the U.S. and placed directly into a non-U.S. safe deposit box or private vault apparently do not constitute a foreign account since private vaults are not financial institutions. 

Additional comments about this form are included in the archives for The Jacobs Report, a free email newsletter about domestic and international tax and asset protection subjects.

Vernon Jacobs