5.21.6  Foreign Financial Account Reporting

Manual Transmittal

November 27, 2013

Purpose

(1) This transmits a revision of IRM 5.21.6, Foreign Bank and Financial Account Report, for collection employees.

Material Changes

(1) Subsection 5.21.6.2 is revised to reflect new filing requirements for the FBAR form from FinCEN .

(2) Subsection 5.21.6.9 is added to explain the Foreign Account Tax Compliance Act (FATCA) filing requirements.

(3) Section 5.21.6 has been renamed to reflect the inclusion of other reporting requirements besides FBAR.

(4) Exhibit 5.21.6-1 is added to compare the filing requirements for Form 8938 and FBAR

(5) Editorial changes made throughout the text to make minor grammatical corrections, update organization terms and/or titles, and correct cross references.

Effect on Other Documents

IRM 5.21.6 supersedes IRM 5.21.6, dated 2/17/2009

Audience

The target audience is revenue officers in SB/SE Field Collection (FC).

Effective Date

(11-27-2013)

Dretha Barham
Director, Collection Policy

5.21.6.1  (02-17-2009)
Introduction

  1. Report of Foreign Bank and Financial Accounts (FBAR) is authorized by statute.

    • 31 U.S.C. §5314(a) directs the Secretary to require residents or citizens of the United States, or a person in and doing business in the United States, to keep records and/or file reports when the person makes a transaction or maintains a relationship with a foreign financial agency.

    • Section 5314(b) authorizes the Secretary of the Treasury to carry out this mandate by issuing regulations prescribing the application of the reporting requirements, including to whom the requirements apply.

5.21.6.2  (11-27-2013)
Reporting Requirements

  1. Each U.S. person who has a financial interest in, or signature or other authority over, one or more foreign financial accounts that has an aggregate value greater than $10,000 at any time during a calendar year is required to confirm the existence of the foreign account on Schedule B of Form 1040, and on similar schedules of other federal tax forms, as well as report the foreign accounts on FinCEN Form 114,Report of Foreign Bank and Financial Accounts (FBAR), formerly form TD F 90-22.1. The FBAR is due on or before June 30 of the year immediately following the calendar year being reported.

    Note:

    On October 1, 2013, FBAR form TD F 90-22.1 was replaced by FinCEN Form 114. Beginning with the filing season starting July 1, 2013, FinCEN requires that all FBAR forms be electronically filed through their website at http://www.fincen.gov/. This includes any late-filed forms which were due on or before June 30, 2013.

  2. Each person who is required to report an interest in foreign financial accounts must also maintain certain records of any foreign accounts.

  3. See 31 C.F.R. 1010.350 Reports of foreign financial accounts, and 1010.420 Records to be made and retained by persons having financial interests in foreign financial accounts, for additional information regarding records.

  4. See IRM 5.1.18.16, Foreign Bank and Financial Account Report, for information on locating records of FBAR forms filed by the taxpayer.

5.21.6.3  (02-17-2009)
Penalties

  1. Failure to file the required report or maintain adequate records is a violation of Title 31. For each violation a penalty may be asserted.

  2. Violations Occurring Prior to October 23, 2004 (Willful). 31 U.S.C. §5321(a)(5)authorizes a civil monetary penalty for any person who willfully violates (or willfully causes any violation of) 31 U.S.C. §5314not to exceed the greater of:

    1. an amount equal to the balance in the account at the time of the violation up to $100,000, or

    2. $25,000.

  3. Violations Occurring on or after October 23, 2004 (Willful):

    31 U.S.C. §5321(a)(5)(C) authorizes a civil monetary penalty for any person who willfully violates (or willfully causes any violation of) 31 U.S.C. §5314 not to exceed the greater of:

    1. an amount equal to 50% of the balance in the account at the time of the violation, or

    2. $100,000.

      Note:

      The penalty can be for each violation.

  4. Violations Occurring on or after October 23, 2004 (Non-Willful):

    • 31 U.S.C. §§ 5321(a)(5)(A) & (B) authorize a civil monetary penalty for any person who violates (or causes any violation of) 31 U.S.C. §5314 in an amount not to exceed $10,000.

    • The penalty should not be asserted if the violation was due to reasonable cause.

      Note:

      The penalty can be for each violation.

5.21.6.4  (11-27-2013)
Delegated Authority

  1. Even though the penalty imposed under 31 U.S.C. §5321(a)(5) for failing to report these foreign financial interests (commonly called the FBAR penalty) is not a tax debt, the IRS has been delegated the authority to assess and collect the penalty for the government. Delegation Order 4-35, revised on March 24, 2008, authorizes revenue officers grade 9 and above to investigate possible civil violations of the FBAR requirements. This delegation order also authorizes insolvency units to protect the government's interest in bankruptcy, state and federal receiverships, and other state and federal insolvency actions.

    Note:

    Delegation Order 4-35 was superseded by Delegation Order 25-13 (revised on April, 11, 2012).

  2. Collection is not delegated any enforcement authority with respect to FBAR penalties.

  3. See IRM 5.9.4.19, Foreign Bank and Financial Account Reports (FBAR), for information on filing claims in a bankruptcy proceeding.

5.21.6.5  (11-27-2013)
Systemic Tracking

  1. The Currency Banking and Retrieval System (WebCBRS) contains a listing of filed FBAR reports:

    1. WebCBRS reflects all information the taxpayer included on FinCEN Form 114: bank names, account numbers, account balances, other owners, etc. Anyone with ability to query WebCBRS may obtain this information.

    2. FBAR penalties are asserted under Title 31 as a non-tax debt and do not appear on IDRS. They are tracked on a separate database at Detroit Computing Center (DCC) and that is where payments are posted and notices generated.

5.21.6.6  (11-27-2013)
IDRS

  1. The filing of FinCEN Form 114 by or for the taxpayer will generate an IDRS IRPTR transcript. IRPTR will only reflect the filing of the form and WebCBRS will still need to be queried to obtain all information available from the form.

  2. See IRM 5.1.18.16, Foreign Bank and Financial Account Report, and IRM 2.3.35, Command Code IRPTR.

5.21.6.7  (11-27-2013)
CSED

  1. The government has two years in which to file a civil action to recover an FBAR penalty beginning on the later of the date the penalty was assessed or the date any judgment becomes final in any criminal action under 31 U.S.C. §5322 in connection with the same transaction with respect to which the civil penalty was assessed. Currently, IRS has no procedures for soliciting a waiver of this two-year statute of limitations.

  2. See IRM 5.9.4.19, Foreign Bank and Financial Account Reports (FBAR), for CSED considerations in bankruptcy.

5.21.6.8  (11-27-2013)
Collection of FBAR Penalties

  1. The Financial Service, formerly Financial Management Services (FMS), which is a bureau of the Department of the Treasury, is responsible for collecting all non-tax debts. This includes FBAR penalties.

  2. Advise all taxpayers who have questions or need to pay an FBAR penalty to write to:
    Internal Revenue Service
    Detroit Computing Center
    P.O. Box 33115
    Detroit, MI 48232

5.21.6.9  (11-27-2013)
Foreign Account Tax Compliance Act (FATCA)

  1. Foreign Account Tax Compliance Act (FATCA) is a statute written subsequent to the FBAR statute. Some taxpayers who file FBAR forms have a further requirement to file Form 8938, Statement of Specified Foreign Financial Assets, if they have specified foreign financial assets with an aggregate value exceeding $50,000 on the last day of the tax year or $75,000 at any time during the tax year, with higher thresholds for married individuals filing jointly and individuals living abroad.

  2. The Form 8938 filing requirement does not replace or otherwise affect a taxpayer’s obligation to file an FBAR form. Individuals must file each form for which they meet the relevant reporting threshold. See IRM Exhibit 5.21.6-1 for a comparison of these two foreign account reporting requirements.

Exhibit 5.21.6-1 
Comparison of Form 8938 and FBAR Requirements

  Form 8938, Statement of Specified Foreign Financial Assets FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)
Who Must File? Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Does the United States include U.S. territories? No Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting
Reporting Threshold (Total Value of Assets) $50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad) $10,000 at any time during the calendar year
When do you have an interest in an account or asset? If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return. Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title. Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account. See instructions for further details.
What is Reported? Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets Maximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported? Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported. Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars. Use periodic account statements to determine the maximum value in the currency of the account. Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.
When Due? By due date, including extension, if any, for income tax return Received by June 30 (no extensions of time granted)
Where to File? File with income tax return pursuant to instructions for filing the return Beginning with the filing season starting July 1, 2013, FBAR forms must be electronically filed with FinCEN. See IRM 5.21.6.2(1) above.
Penalties Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply
Types of Foreign Assets and Whether They are Reportable
Financial (deposit and custodial) accounts held at foreign financial institutions Yes Yes
Financial account held at a foreign branch of a U.S. financial institution No Yes
Financial account held at a U.S. branch of a foreign financial institution No No
Foreign financial account for which you have signature authority No, unless you otherwise have an interest in the account as described above Yes, subject to exceptions
Foreign stock or securities held in a financial account at a foreign financial institution The account itself is subject to reporting, but the contents of the account do not have to be separately reported The account itself is subject to reporting, but the contents of the account do not have to be separately reported
Foreign stock or securities not held in a financial account Yes No
Foreign partnership interests Yes No
Indirect interests in foreign financial assets through an entity No Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail.
Foreign mutual funds Yes Yes
Domestic mutual fund investing in foreign stocks and securities No No
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor Yes, as to both foreign accounts and foreign non-account investment assets Yes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-value Yes Yes
Foreign hedge funds and foreign private equity funds Yes No
Foreign real estate held directly No No
Foreign real estate held through a foreign entity No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate No
Foreign currency held directly No No
Precious Metals held directly No No
Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles No No
‘Social Security’- type program benefits provided by a foreign government No No


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