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May 27, 2014

2014 - Issue 21—Authorized under the Bank Secrecy Act of 1970 and amplified under the Patriot Act in 2001, the Report of Foreign Bank and Financial Accounts (FBAR) form is intended to inhibit tax evasion and money laundering, while identifying the illegal funneling of money abroad. While the original purpose of the FBAR was to prevent illegal financial activities, the existing rules for who must file an FBAR arguably go beyond the scope of that initial purpose. Many U.S. multinational corporations and their employees (specifically treasury department personnel) may have FBAR filing requirements with respect to their U.S. or foreign subsidiaries and not even know it.

In 2013, the Financial Crimes Enforcement Network (FinCEN) announced that it would be implementing a new mandatory e-filing mechanism for FBARs. Form TD F 90-22.1, which has been used by U.S. persons to report interests in foreign financial accounts, has been discontinued. Its replacement, the new FinCEN Report 114, is required to be e-filed for 2013 reports and forward, and must be filed by June 30, 2014 for the 2013 calendar year. As the filing deadline approaches, we have decided that now is a good time to revisit the FBAR. This edition of Tax Advisor Weekly discusses the FBAR filing requirements as they relate to U.S. multinational corporations and their employees, some of the penalties for failure to timely file the form, and the new requirements issued by FinCEN.

Who Must File an FBAR

The determination of who has an FBAR filing requirement remains largely unchanged under FinCEN’s new filing mechanism. As discussed below, FinCEN now allows U.S. persons or entities with FBAR filing requirements to have a third party file on their behalf. An FBAR must generally be filed by U.S. persons (which includes U.S. resident individuals and business entities organized in the U.S.) who have a financial interest in or signature authority over foreign financial accounts. However, if the aggregate value of a U.S. person’s foreign accounts does not exceed $10,000 at any time during the taxable year, then no FBAR must be filed. For this purpose, foreign financial accounts include, but are not limited to:

  • Securities accounts;
  • Brokerage accounts;
  • Savings accounts;
  • Checking accounts;
  • Demand accounts;
  • Deposit or time deposit accounts;
  • Commodity futures accounts;
  • Options accounts;
  • Insurance policies with cash value;
  • Annuity policies with cash value; and
  • Shares in pooled funds, such as a mutual fund.

U.S. multinational corporations may be subject to the FBAR filing requirements with respect to foreign financial accounts owned by themselves or their domestic and foreign subsidiaries. Further, employees of U.S. multinational corporations may have FBAR filing requirements with regards to foreign financial accounts owned by entities within their global structure over which they have signatory authority. In addition to individuals who own foreign financial accounts, some common examples of who must file FBARs include:

  • U.S. corporations, partnerships and S corporations who own foreign financial accounts;
  • Corporate employees, particularly those in the treasury function, who have signatory authority over foreign financial accounts;
  • A U.S. parent of a foreign subsidiary if the foreign subsidiary has a financial interest in a foreign financial account;
  • The controlling shareholder of a U.S. corporation that owns a foreign subsidiary, if the foreign subsidiary has a financial interest in a foreign financial account and the controlling shareholder is a U.S. resident; and
  • U.S. partners in a partnership that is a controlling partner or shareholder of a U.S. partnership or corporation that owns a foreign subsidiary, if the foreign subsidiary has a financial interest in a foreign financial account. For these purposes, chain of ownership may be taken into account, creating a filing requirement for the ultimate owners in “tiered” structures.

Although the determination of who has an FBAR filing requirement remains unchanged under FinCEN’s new filing mechanism, corporate tax departments would be wise to ascertain which entities in their global structures and which employees in their worldwide group have FBAR filing requirements so that they can collect the information necessary to file any required FBARs by the June 30 deadline.

FBAR Filing Date and Procedure for Filing FBAR (Past AND Present)

Historically, FBAR filings are due on June 30th each year for disclosures related to the prior calendar years, regardless of a filer’s choice of a fiscal year. This June 30th filing date remains under the new regime. Historically, FBARs were filed on Form TD F 90-22.1, which was mailed to the IRS. While the vast majority of IRS filings must be postmarked by their due date, FBAR filings were required to be received by the Treasury Department on or before June 30th. This effectively made the due date several days earlier than the prescribed date, as time in the mail had to be taken into account. Under the new regime, FBARs must be e-filed on FinCEN Report 114. Submitting FinCEN Report 114 may be accomplished by enrolling in the FinCEN system, creating a login, filling in the required information and transmitting the FBAR to FinCEN. Thus, an FBAR is submitted electronically and received immediately by the IRS, alleviating the concerns of the FBAR reaching the IRS in time via the mail. The FBAR is filed independently from any income tax return.

Prior to 2014, U.S. persons were not allowed to have someone file an FBAR on their behalf. However, under the new filing mechanism, U.S. persons may authorize a third party to file FinCEN Report 114 on their behalf. This is particularly helpful for executives with signatory authority but no financial interest in foreign accounts, as it dramatically simplifies their annual reporting responsibilities. Rather than having to prepare and submit an FBAR each year personally, individuals (who do not have any personal foreign accounts to report) with signatory authority over company accounts may simply allow the form to be prepared and filed on their behalf by signing FinCEN Report 114a and giving it to an FBAR preparer. In doing so, the U.S. person also authorizes the third party to answer inquiries from and resolve issues with the IRS. This allows a U.S. person to take a more hands-off approach to filing than was generally available under the prior filing mechanism. It should be noted that although the form can be prepared and filed by a third party, it is always prudent for the individual to review any forms prior to filing.

Information Required to be Furnished on FBAR (Past and Present)

The information required on the new FinCEN Report 114 is substantially identical to that required under Form TD F 90.22.1. The information includes:

  • Highest account value during the taxable year of any foreign financial accounts required to be disclosed;
  • Name of the account owner;
  • Taxpayer (or foreign) identification number of account owner;
  • Account number;
  • Type of account;
  • Financial institution with whom the account is held; and
  • Address of the institution.

Potential Penalties for Failure to Timely File FBAR

Failure to file an FBAR can carry stiff civil and criminal penalties. If a U.S. person required to file willfully violates this duty, they may be subject to a civil penalty of the greater of $100,000 or 50 percent of the foreign account balance. Criminal penalties are up to $250,000 and/or five years in prison. However, the IRS has discretion to significantly reduce penalties in cases of non-willful violation. Such a penalty is capped at $10,000 per form, but may be reduced to zero if the failure to file was due to reasonable cause. The IRS will generally consider, among other factors, a taxpayer’s prior history of incurring compliance penalties and its cooperation during the examination in reducing the failure to file penalty.

Although the penalties for failure to timely file a required FBAR can be severe, there is hope if an FBAR is not filed on time. The Offshore Voluntary Disclosure Program (OVDP) was created in 2012 and allows taxpayers that have undisclosed foreign financial accounts to become compliant with United States tax laws. In some cases, the IRS may be willing to offer relief to taxpayers by abating penalties if the failure to timely file FBARs is due to reasonable cause and not to willful neglect so long as the taxpayer files the necessary forms prior to the IRS finding the deficiency and sending a notice to the taxpayer. The OVDP process typically involves filing foreign informational returns that were not timely filed, as well as filing amended returns for all persons that missed a filing deadline for the most recent eight tax years for which the due date of the original return has already passed.

Alvarez & Marsal Taxand Says:

Navigating the FBAR filing requirements can be a confusing endeavor. However, a complete understanding of these requirements is critical, as illustrated by the large penalties that may be imposed for a failure to timely file the form. Although the June 30 deadline is approaching, there is plenty of time for corporate tax departments to review whether their company or individuals within their company have a filing requirement and begin gathering the required information. Keep in mind that properly e-filing any required FBARs is well worth the time in order to mitigate the risk that you or your company receives a penalty notice from the IRS. 


Kristina Dautrich Reynolds
Managing Director, Washington D.C.
+1  202 688 4222

Nicolaus McBee, Director, and Brendan Sinnott, Associate, contributed to this article.

For more information: 

Juan Carlos Ferrucho
Managing Director, Miami
+1 305 704 6670

Albert Liguori
Managing Director, New York
+1 212 763 1638

Nicolaus McBee
Director, New York
+1 212 763 9838


As provided in Treasury Department Circular 230, this publication is not intended or written by Alvarez & Marsal Taxand, LLC, (or any Taxand member firm) to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding tax penalties that may be imposed on any taxpayer. 

The information contained herein is of a general nature and based on authorities that are subject to change. Readers are reminded that they should not consider this publication to be a recommendation to undertake any tax position, nor consider the information contained herein to be complete. Before any item or treatment is reported or excluded from reporting on tax returns, financial statements or any other document, for any reason, readers should thoroughly evaluate their specific facts and circumstances, and obtain the advice and assistance of qualified tax advisors. The information reported in this publication may not continue to apply to a reader's situation as a result of changing laws and associated authoritative literature, and readers are reminded to consult with their tax or other professional advisors before determining if any information contained herein remains applicable to their facts and circumstances.

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