Huge penalty for not filing FBAR by June 30 deadline

Rajesh Dhruva, Tax Consultant India   Milan Madhani CPA
Rajesh Dhruva, Tax Consultant India, Milan Madhani CPA

CHICAGO: US citizen, US green card holder, or a US resident alien (H1B, H4, L1, L2, or any other visa holder who meets the substantial presence test and who filed a regular US 1040 for 2013) are required to file FBAR before June 30, 2014 failing which they are liable for hefty penalty.

According to Milan Madhani, a CPA and a practicing accountant in Chicagoland, India is a signer to Foreign Accounts Tax Compliance Act (FATCA). All foreign financial institutions who have signed up with the IRS compliance program, known as FATCA are required to report American citizens and green card holders’ names and addresses to the IRS, and any foreign account information pertaining to them.

“If you had, in 2013, any bank, retirement, insurance or investment accounts in a foreign country whose maximum calendar year balances exceeded $10,000 individually or in total, then you have to file the Report of Foreign Bank and Financial Accounts (known as the FINCEN 114, aka, FBAR by June 30th of this year,” he said.

Failing to comply, that is failing to file before the due date without any valid reason; the IRS can legally fine you a civil penalty of $10,000 for each foreign account held in 2013. “The worst part is, if the IRS deems you willfully decided to not comply and you knew about the requirement, the penalty is greater of $100,000 or 50% percent of the amount in each account (See 31 USC 5321(a)(5)),” Madhani added.

FBAR was originally set up to prosecute money laundering but it is now also being used to combat offshore tax evasion. As of the end of 2013, the IRS enforcement program has resulted in collections of over $5.5 billion. Yet, the US Treasury Department believes it has collected only a fraction of the tax actually due related to offshore tax evasion. In particular, the FBAR helps the US government trace funds used for illicit activity and discover unreported income. But foreign financial accounts used for legitimate purposes must also be reported.

In U.S.A. vs. CARL R. ZWERNER, on May 28, 2014 a Federal District Court jury in Florida determined that FBAR penalties in the aggregate amount of $2,241,809 with respect to an offshore account that had an apparent high balance of $1,691,054 during the years at issue was appropriate – an FBAR penalty equivalent to 150% of the highest account values in the previously undeclared foreign financial account.

Rajesh Dhruva, a practicing account attorney in Rajkot India said that from September 30, 2013 a new Financial Crimes Enforcement Network (FinCEN) Form 114 has been introduced in place of Form TD F 90-22.1 and from the year 2013 the FBAR reporting is to be submitted to the Internal Revenue Service (IRS).

Earlier Form TD F 90-22.1 was to be filed manually whereas (FinCEN) Form 114 from current year is to be filed electronically.
Besides an individual a USA partnership firm, a Limited Liability Company (LLC) or trust (referred as United States Person) which has financial interest or signing authority in overseas financial investment exceeding US $ 10,000 during a calendar year, are covered in this program.

It may be noted that filing of tax returns jointly by a married couple is common in USA but the limit of US $ 10,000 is for each individual and as the requirement extends to all accounts wherein an individual has a signing authority, both husband and wife are to separately file details of each joint account.

FBAR applies to Bank accounts; Securities; brokerage account; Commodity Futures & Options Accounts; insurance policy and any annuity with cash value; Mutual fund or similar pooled fund and any account maintained with a foreign financial institution or other person performing the services of a financial institution.

It may be noted that investment in a partnership or proprietorship firm, private limited company, personal loans and personal assets like jewellery are not included and hence, not required to be reported.

Immovable properties are also not covered under FBAR but bank balances generated for purchase of immovable property by funds remitted in bank account in India need to be reported.

However it may be noted that FBAR reporting applies to old accounts in India as also accounts holding inherited assets.

Improper filing of FBAR attracts penalty of $10,000 whereas willful failure to file FBAR is liable to penalty of greater of $100,000 or 50% of the balance at the time of violation and also is subjected to criminal penalties.

More info can be found at

Ramesh Soparawala

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