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Presented by
AO Tax – Knowledge Management Team
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P A R T I
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 The Bank Secrecy Act (BSA) gave the Department of
Treasury authority to establish recordkeeping and filing requirements for United States persons with financial interests in or signature authority, or other authority over financial accounts maintained with financial institutions in foreign countries.
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This provision of the law requires that a Form TD F 90-
22.1, Report of Foreign Bank and Financial Accounts
(FBAR) be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year.
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 On April 10, 2003, the Financial Crimes and
Enforcement Network (FinCEN) delegated enforcement authority to the Internal Revenue
Service (IRS).
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The IRS is now responsible for:
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Investigating possible civil violations.
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Assessing and collecting civil penalties; and
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Issuing administrative rulings.
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 The FBAR rules were established because of the utility of the information required in criminal, tax, and other regulatory matters and in the conduct of intelligence or counter intelligence activities including analysis to protect against international terrorism.
 The reports filed as a result of this regulation:
 provide leads to investigators that facilitate the identification and tracking of illicit funds or unreported income, as well as
 providing additional prosecutorial tools to combat money laundering and other crimes
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An FBAR must be filed by:
(1) a “U.S. person;”
(2) who had a “financial interest” in or “signature or other authority” over;
(3) any “financial accounts;”
(4) located in a “foreign country;”
(5) if the aggregate value of those accounts exceeds $10,000 at “any time” during the calendar year.
 This is subject to certain exceptions.
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“U.S. Resident” determined under IRC 7701(b)
Green Card and Substantial Presence tests
Those who elect to be treated as residents under
7701(b) file FBARs only on accounts held during the election period
Tax treaty or IRC 6013(g) or (h) elections disregarded for FBAR purposes
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Financial interest can be direct or indirect.
 Direct financial interest:
U.S. person is owner of record or has legal title.
Beneficial ownership is irrelevant.
 Indirect financial interest includes:
The person holding legal title is acting as agent or nominee for the U.S. person.
The person that owns the account is an entity of which the U.S. person owns more than 50%, directly or indirectly.
The person that owns the account is a grantor trust of the U.S. person
The person that owns the account is a trust in which the U.S. person has a
“present beneficial interest” in more than 50% of the assets or receives more than
50% of the income.
Protector rules removed from final regulations.
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 the U.S. person is the owner of record or has legal title,
 whether the account is maintained on his or her own benefit or for the benefit of others including non-United
States persons.
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 the owner of record or holder of legal title is a person acting as an agent, nominee, or in some other capacity on behalf of a U.S. person.
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 Example 1: John, a U.S. citizen who resides in
India, granted his brother Paul, a U.S. citizen, a
Power of Attorney to access his Indian bank accounts. Paul is the owner of record. Who is required to file FBAR?
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John has a financial interest in the account. Paul is acting only as an attorney on behalf of John.
Paul also has a financial interest in the account, since he is the owner of record.
Both John and Paul must file an FBAR.
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 Example 2: Given the information in the above example, if Paul is a Indian citizen, must he file the
FBAR?
 No, Paul is not considered to be a U.S. person.
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 Example 3: AO Tax, Inc. (US Corporation) that owns AO Tax Pvt. Ltd. (100% subsidiary of US Corp) that has foreign financial accounts has to file an
FBAR because:
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 the Corporation (AO Tax, Inc.) is a U.S. person and the owner of record or holder of legal title (AO Tax
Pvt. Ltd.) is a corporation that directly owns more than 50% of the total value of the shares of stock.
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 Example 4 : A U.S. person who owns 75% of the
(AO Tax, Inc.) US Corporation in the previous example has to file an FBAR because:
 he indirectly owns more than 50% of the total value of shares of stock of the foreign corporation.
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A U.S. person has account “signature authority” if that person can control the disposition of money or other property in the account
by delivery of a document containing his signature to the bank or other person with whom the account is maintained.
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A person with “other authority” over an account is one who can exercise power that is comparable to signature authority over an account
by direct communication, either orally or by some other means to the bank or other person with whom the account is maintained.
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 Some examples of Signature or Other Authority are:
Individuals only.
Corporate officers or supervisory role.
Investment advisors.
General POA.
“The phrase 'in conjunction with others' is intended to address situations in which a foreign financial institution requires a direct communication from more than one individual regarding the disposition of assets in the account.”
 Duplication in FBAR reporting is intended by FinCEN and is a
“valuable tool” in law enforcement.
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 It includes Bank accounts (checking, savings, CDs), securities or Brokerage accounts (buying, selling, holding or trading stocks, bonds, etc.) or “other financial accounts”.
 “Other financial account” includes:
Account with a person in the business of accepting deposits as a financial agency.
Insurance or annuity with a cash surrender value.
Investment Account with a person that acts as a broker or dealer for commodity futures or options.
Mutual fund or similar pooled fund.
Escrow account.
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 Individual bonds, notes, stock certificates, hedge funds, etc., generally are not financial accounts
 “Mutual Fund” is defined as:
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Shares issued to the general public
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Shares that have a regular NAV determination, and
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Regular redemptions
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 The Regulations provide exceptions for certain accounts.
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Retirement plans:
IRA owners and beneficiaries.
Participants and beneficiaries of qualified plans (401(a), 403(a),
403(b)).
 Federal oversight/signature authority only on employer‘s accounts:
Officer or employee of bank.
Officer or employee of financial institution under SEC or CFTC .
Officer or employee of authorized service provider.
Officer or employee of listed company or U.S. subsidiary of a listed company.
Officer or employee of 12(g) public company.
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 Officers/employees as to company accounts of following:
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Banks subject to U.S. financial regulation
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Publicly traded companies
Financial institutions subject to SEC
Companies with securities registered under §12(g) of the SEA
Companies with more than $10 Million in assets and more than 500 shareholders
 Officers/employees of foreign company, and who reside in foreign country must only complete identification portion of form
 Corporations or other entities that own majority interest in other entity can file consolidated report
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 Persons with financial interest or authority over 25
or more accounts need only report the number of accounts and certain basic information
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Indentifying information
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Accounts being reported
 Report by filing spouse satisfies requirement of nonfiling spouse over all joint accounts
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An account is located in a foreign country if it is outside of the U.S. i.e. Any geographic area outside of the United States
Account with a Foreign Bank at a branch in US is not a foreign account. E.g.: Account with HSBC in US is not Foreign Account.
Account with a US bank at a branch outside US is a foreign account. E.g.: Account with HSBC in India is a Foreign Account.
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 The aggregate value of foreign financial accounts must exceed $10,000 at any point in the year.
 Use the maximum value of the account (cash plus the value of any nonmonetary assets) that appear on any periodic account statements e.g. bank statements.
 Preamble to final regulations confirm that a filer can rely on periodic account statements prepared by the financial institution in the ordinary course of its business.
 Convert foreign currency into USD by using the official exchange rate released by
Treasury. Value in local currency is converted to U.S. dollars at 12/31 rate.
 If more than one account, determine the maximum value of each account using this process and then add together to determine whether the aggregate exceeds $10,000.
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Example 1
Bank A account = $8,000 (Moved entire amount to new account)
Bank B account = $8,000
Total accounts are $16,000
However, not over $10,000 at a given time during the year.
Therefore: Filing not required.
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Example 2
Bank A account = $8,000
Bank C account =$4,000 (move Bank A account to new Bank B account)
Bank B account = $8,000
Total accounts are $12,000
Now accounts exceed $10,000
FBAR Filing required
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P A R T 2
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 Spouse is not required to file separate FBAR if:
All financial accounts of the non-filing spouse are jointly owned with filing spouse;
Filing spouse reports the jointly owned accounts; or,
Both spouses sign FBAR.
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 Entity that is a U.S. person can file consolidated
FBAR with other entities it owns, directly or indirectly, more than 50%
Filing entity must be U.S. person.
Foreign parent cannot file for convenience.
Parent cannot be individual.
Fund manager or other de facto controlling party cannot file for convenience unless satisfies 50% ownership test.
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 Even LLCs with a non-resident owner, who are disregarded for tax purposes and therefore do not have any US tax filing obligation are considered by the IRS to be required to file an FBAR if they have foreign accounts exceeding USD10,000, whether denominated in USD or other currencies.
 An LLC with multiple members as well as any US corporation is subject to the FBAR requirement .
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 Hand-Delivery, or Mail/Courier to:
U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621
 If an express delivery service is used, file by mailing to:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226
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 On September 30, 2013, FinCEN posted a notice on their website announcing the current FBAR form, FinCEN Report
114, Report of Foreign Bank and Financial Accounts. FinCEN
Report 114 supersedes the previous years’ form TD F 90-22.1 and is only available online through the http://bsaefiling.fincen.treas.gov/main.html
website.
 E-filing is a quick and secure way for individuals to file
FBARs.
 Filers will receive an acknowledgement of each submission.
For more information about FBAR e-filing, read the FinCEN news release .
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 June 30 of the next tax year is the deadline to file FBAR for current tax year. This has nothing to do with the tax filing due date i.e. April 15. E.g. FBARs for Tax Year
2014 must be filed on or before 6/30/2015.
 No “mailbox rule” – must be received by June 30. In other words, date of posting FBAR is not relevant. Filer should ensure that FBAR reaches the IRS before June 30.
 No extension available
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Account records must be maintained for Five Years
Exception: Officers or Employees who file an FBAR because of signature authority over the foreign financial account of their employers are not expected to personally maintain the records of these foreign financial accounts.
AO Tax - Building Relationships NOT Clients!

Do I need to file an FBAR for my infant son who is a U.S. citizen and has foreign financial accounts, but is not required to file a tax return?
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Yes. There are no age limitations on FBAR filing.
An FBAR should be filed on behalf of your son if he has reportable foreign financial accounts.
Remember--tax filing status is not a consideration for FBAR.
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An individual has the power to direct how an account is invested, but cannot make dispositions from the account. Is that individual required to file the FBAR?
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 No. The FBAR is not required because the person who cannot make dispositions from an account is not considered to have signature authority over the account.
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Yes. FBAR must be filed regardless of the fact whether they generate income or not.
However, they should exceed more than $10,000 at anytime during the tax year.
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Penalties for failure to file:
Willful violation- greater of $100,000 or 50% of highest balance in account. It is possible that penalties may exceed the account balance
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Non-willful violation- $10,000. Penalty can be avoided for reasonable cause if income from account was reported
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Criminal penalties:
Willful violation- $250,000 and/or 5 years prison
Willful violation while violating another law or pattern of illegal activity- $500,000 and/or 10 years prison
 Burden is on the IRS to show that the person knew of the FBAR reporting requirements and made a choice not to comply.
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EXAMPLE: Assume taxpayer has the following amounts in a foreign account over a period of years.
Year
2009
2010
2011
2012
2013
Amount of Deposit
1,000,000
Interest
Income
50,000
50,000
50,000
50,000
50,000
Account
Balance
1,050,000
1,100,000
1,150,000
1,200,000
1,250,000
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Penalties total up to $2,875,000 for willful failures to file complete and correct FBARs - greater of $100,000 or 50% of highest balance in account.
(2009 - $525,000, 2010 - $550,000, 2011 - $575,000, 2012 - $600,000,
2013 - $625,000)
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P A R T 3
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OVDP
2012
27.5 percent of the highest aggregate balance or value of offshore assets during the prior eight years
The IRS may end the 2012 program at any time in the future
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EXAMPLE: Assume taxpayer has the following amounts in a foreign account over a period of years.
Year Amount of Deposit
2005
2006
2007
2008
2009
1,000,000
Interest
Income
50,000
50,000
50,000
50,000
50,000
Account
Balance
1,050,000
1,100,000
1,150,000
1,200,000
1,250,000
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Penalties 2009- $250,000 (i.e. 20% on 1,250,000)
Penalties 2011- $312,500 (i.e. 25% on 1,250,000)
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What are some of the criminal charges I might face if I don't come in under voluntary disclosure and the IRS examines me?
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 Possible criminal charges related to tax returns include:
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Tax Evasion (26 U.S.C. § 7201) - A person convicted of tax evasion is subject to a prison term of up to 5 years AND a fine of up to $250,000.
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Filing A False Return (26 U.S.C. § 7206(1)) - Filing a false return subjects a person to a prison term of up to 3 years AND a fine of up to $250,000.
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Failure To File An Income Tax Return (26 U.S.C. § 7203) - A person who fails to file a tax return is subject to a prison term of up to 1 year AND a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to 10 years AND criminal penalties of up to $500,000.
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Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.
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What happens if I fail to make a voluntary disclosure by the August 31 deadline?
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 Although the terms of this initiative are available only to taxpayers who complete the voluntary disclosure process on or before August 31, Criminal Investigation’s Voluntary
Disclosure Practice remains available to taxpayers who wish to disclose voluntarily their tax violations after that date.
 However, these taxpayers will not be eligible for the special civil terms of this initiative and will be liable for all applicable civil penalties, including the willful FBAR penalty.
 In addition, the civil resolution of their cases may extend to tax years prior to 2003.
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P A R T 4
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 It is important to correct past years delinquencies in order to protect against the above penalty.
 Below are the options available for handling these delinquent FBAR filings. The variances between the options essentially revolve around the uncertainty of an IRS audit, along with other risk factors that should also be considered:
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1. Potential assessment of a non-willful penalty of $10,000 each year for up to six years;
2. Potential application of the willful penalty of $100,000 or 50% of account balances for each of up to the past six years; and
3. Costs associated with proceeding with one option over the other.
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One could do nothing with regard to past years, and simply be in compliance going forward. This approach is not advisable.
The statute of limitation on FBAR filings is six years.
Accordingly, the exposure to potential penalties is huge.
Upon audit, penalties and criminal charges would likely be imposed, and the taxpayer would have nothing to show the IRS to argue against such heavy penalties.
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 A taxpayer could simply file past years‘ FBARs for 2008 through 2013 (six years). This option is simple, low cost, and should limit penalties to $10,000 per violation.
 The disadvantage to this option is the potential for assessment of FBAR penalties as high as 300% of your account balances.
 For example, if one left $100,000 in a foreign account, the
IRS could impose penalties of 50% x $100,000 x 6 years =
$300,000.
 This is not a likely outcome as the IRS would need to prove taxpayer willfully violated the FBAR filing requirements to properly assess this penalty.
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 It is the IRS's burden of proof to show a willful violation of the FBAR filing requirement.
 In this case, showing willfulness requires the IRS to show that the taxpayer knew of the requirement to file, and decided not to comply by filing the appropriate form.
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In addition to filing past years' FBARs, a taxpayer may also consider filing amended returns to report unreported income in the foreign accounts.
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This option is also relatively simple, but is slightly more costly than Option
2 above due to increased professional fees for preparing amended returns and the payment of additional tax.
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However, this approach provides greater arguments, in the event of an audit, to limit possible penalties.
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The ability for the IRS to impose the 50% penalty still exists, but is significantly lowered as a result of one's good faith filing of the amended returns.
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This is particularly true if the unreported income is minimal.
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Although the statute of limitations for FBAR filings is six years, the statute of limitations for assessment of additional tax is generally only
three years.
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Accordingly, the IRS should not be able to reach back further than three
years to assess additional tax.
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If, however, more than 25% of one's income is not properly reported in one's returns, the statute is six years.
 Filing these amended returns will not only reduce interest owing on additional taxes assessed, but also more importantly filing shows a good faith effort to comply with the reporting rules.
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Showing good faith to the IRS may be valuable in the event of an audit to augment an argument for non-willful violations.
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 Such filings should be accompanied by a letter explaining the reasons for the amended returns and delinquent FBAR filings.
 It also may allow the taxpayer to argue reasonable cause for the failure to file FBARs, which might reduce the penalties further.
 At the same time, however, it also brings greater attention to the taxpayer.
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These so called "noisy" filings are typically viewed by actual IRS personnel as are most amended returns.
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Regardless, this approach is likely the most professional treatment, and should result in the most efficient outcome.
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The Offshore Voluntary Disclosure Initiative ("OVDI") of 2012 (offering a 25%
penalty on the highest balance in one's foreign accounts in the past eight
years in lieu of all other back year reporting penalties) is currently in process, and the IRS may end the 2012 program at any time in the future.
 he IRS is offering taxpayers with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP has a higher penalty rate than the previous programs, but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.
 Additionally, the voluntary disclosure program itself will still exist beyond that deadline.
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The penalties that may be assessed outside the 2012 OVDI program, however, are potentially much higher.
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 The principal advantage offered by the OVDI program is
exemption from criminal prosecution. In other words, only civil penalties apply not criminal penalties.
 In a majority of the cases, however, criminal prosecution is not an issue as the unreported income is often insignificant.
 A second advantage of the OVDI program is certainty in the amount of penalties due
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25% of highest balance in past eight years plus value of certain property
12.5% for account balances below $75,000
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The property to which the penalty applies includes
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 property acquired with unreported income and/or property generating unreported income.
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 A disadvantage is that these penalties are non-negotiable.
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There is absolutely no ability within the program to argue a nonwillful violation regardless of the taxpayer's circumstances.
 There is no ability to maneuver or even appeal these very punishing and inequitable penalty assessments.
 Taking advantage of the OVDI program requires amending tax
returns for the past eight years (2006-2013) to report all unreported income.

Additional tax, penalties and interest would be assessed on outstanding taxes. On top of that would be the 25% (or 12.5%)
FBAR penalty.
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 Despite the general six years statute of limitations on income tax filings, the IRS requires a waiver of that statute for taxpayers to enter the program.
 Taxpayers that entered the 2009 program
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Are being hit with significant penalties and
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Are now considering withdrawing from the program and processing their amended returns and FBARs through the normal audit process where penalties can be reviewed and negotiated.
 This may be a good option for taxpayers that were not negligent, but were merely uniformed about the FBAR reporting.
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 There are many options to the taxpayer to manage one's
Delinquent FBARs. The IRS wants taxpayers to participate in the OVDI program.
 Participating in the OVDI program is definitely the answer if there is a real risk of criminal prosecution.
 Often times, however, the OVDI program may prove unwise and overly costly to the taxpayer.
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If you violate the FBAR filing requirements, whether or not the violation was intentional, you may be subject to both civil and criminal penalties for the same violation.
 That said, it is important that you do not let concerns over potential penalties deter you from filing a delinquent FBAR form. Thus, if you reported and paid tax on all taxable income but did not file FBARs, do not use the voluntary disclosure process.
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This is what the IRS promises to the late FBAR filers:
For taxpayers who reported and paid tax on all their taxable income for prior years but did not file FBARs, you should file the delinquent FBAR reports according to the instructions and attach a statement explaining why the reports are filed late. ...The IRS will not impose a penalty
for the failure to file the FBARs. ( 2012 Offshore Voluntary Disclosure
Initiative Frequently Asked Questions and Answers FAQ 17 )
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 So, the better approach may be to simply file delinquent FBARs &
amend returns as necessary to report associated unreported income.
 If audited, the taxpayer will then be able to argue that their oversight
was non-willful, which is not available in the program.
 The penalties issuing from a successful argument will likely be far below the 25% penalty being offered in the OVDI program by several magnitudes.
 The risks associated with staying out of the program are present, but according to the case law are not great.

Outside the program, taxpayers enjoy the freedom to argue and negotiate reduced penalties.
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 If you want to use AO Tax to prepare your FBAR, we would be happy to process for FREE as part of our 9 FREE Value Added Tax
Services.
 However, if you have to amend your previous year return (for reporting unreported interest income/foreign income with explanation letter) and file FBAR, we charge a nominal fees of
$99.99 per year.

For any questions or assistance in filing FBAR, please write to

 clientservices@aotax.com
nandakumarkv@aotax.com

You can also reach us by phone at 703-584-4624/5533 Ext 201-
205 between 10AM-7PM EST.
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P A R T 5
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 The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to improve tax compliance involving
foreign financial assets and offshore accounts.
 Under FATCA, U.S. taxpayers with specified foreign financial
assets that exceed certain thresholds must report those assets to the IRS.
 This reporting will be made on Form 8938, which taxpayers
attach to their federal income tax return, starting this 2011 tax filing season.
 In addition, FATCA will require foreign financial institutions to
report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
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
Any financial account maintained by a foreign financial institution
 Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
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Stock or securities issued by someone other than a U.S. person
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Any interest in a foreign entity, and
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Any financial instrument or contract that has as an issuer or counterparty that is other than a U.S. person.
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 Unmarried taxpayers living in the US: The total value of your specified foreign financial assets is
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 more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
 Married taxpayers filing a joint income tax return and
living in the US: The total value of your specified foreign financial assets is

 more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year
 Married taxpayers filing separate income tax returns and
living in the US: The total value of your specified foreign financial assets is

 more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
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 You are a taxpayer living abroad if:
You are a U.S. citizen whose tax home is in a foreign country and you are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire tax year, or
 You are a US citizen or resident, who during a period of 12 consecutive months ending in the tax year is physically present in a foreign country or countries at least 330 days.
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

If you are a taxpayer living abroad you must file Form 8938 if:
You are filing a return other than a joint return and the total value of your specified foreign assets is
 more than $50,000 on the last day of the tax year or
 more than $75,000 at any time during the year; or
 You are filing a joint return and the value of your specified foreign asset is
 more than $100,000 on the last day of the tax year or
 more than $150,000 at any time during the year.
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 Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified
Foreign Financial Assets.

The new Form 8938 filing requirement does not
replace or otherwise affect a taxpayers requirement to file FBAR.
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Comparison of Form 8938 & FBAR Requirements
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 This charts provides for the comparison of Form
8938 and FBAR requirements , and other information to help taxpayers determine if they are required to file Form 8938.
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
FATCA requires certain U.S. taxpayers holding foreign financial assets with an aggregate value exceeding
$50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return.

Reporting applies for assets held in taxable years beginning after March 18, 2010.
 For most taxpayers this will be the 2011 tax return they file during the 2012 tax filing season.
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 Failure to report foreign financial assets on Form
8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification).

Further, underpayments of tax attributable to nondisclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.
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 If you do not have to file an income tax return for the tax year, you do not need to file Form 8938, even if the value of your specified foreign assets is more than the appropriate
reporting threshold.
 If you are required to file a Form 8938 and you have a specified foreign financial asset reported on Form 3520,
Form 3520-A, Form 5471, Form 8621, Form 8865, or Form
8891, you do not need to report the asset on Form 8938.
 However, you must identify on Part IV of your Form 8938 which and how many of these form(s) report the specified foreign financial assets.
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We trust this presentation has been of some help to you in understanding your FBAR and
Form 8938 Filing Requirements with IRS. We will be happy to hear your feedback on this presentation. Please write to us at nandakumarkv@aotax.com
Contact Us:
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AO Tax - Building Relationships NOT Clients!