Employees of companies located in the United States may have a personal duty to file a report with the Treasury Department that contains information regarding offshore bank and other financial accounts owned by their employer or its affiliates in order to avoid expensive penalties. Regulations of the Treasury Department require most US individuals who either own, or have signature authority over, a foreign bank account to file a form, known as a Foreign Bank and Financial Accounts Report, annually. Increased FBAR enforcement is likely to play an important role in the government’s crackdown on the use of offshore tax havens. Thus, it is imperative that US officers and directors determine whether they are obligated to file an FBAR.
Who Must File?
In general, a US person who has a financial interest in or signature authority over a foreign financial account must file an FBAR if the aggregate value of all such accounts exceeds $10,000 at any time during the calendar year. The term “foreign financial account” includes bank, securities, and other types of financial accounts. An individual may have to file an FBAR even if he or she has no personal financial interest in the offshore account. There is a limited exception for persons having signature authority over (but no personal interest in) an offshore account where the company that is the beneficial owner of the account is publicly traded or widely held. This exception does not apply to the typical closely held company.
Filing and Penalties for Noncompliance
The FBAR must be filed with the Treasury Department (not the IRS) by June 30 of each year. The penalty for failure to file can be as much as $10,000 per failure where the failure to file was not “willful.” Where the failure was “willful,” the maximum penalty increases to the greater of $100,000 or 50% of the balance of the foreign account in question. In the most egregious cases, criminal penalties may apply.
Any individual who has signature authority over a company’s offshore bank account should determine whether he or she is required to file an FBAR.