The Financial Crimes Enforcement Network (FinCEN) recently announced the inflation-adjusted penalty amounts for a failure to report an interest in a foreign financial account. The increased penalty amounts apply to penalties assessed on or after February 19, 2020.
A U.S. person who has a financial interest in, or signature or other authority over, any foreign financial accounts — including bank, securities or other types of financial accounts in a foreign country — must file a FBAR (FinCEN Form 114) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. A “U.S. person” includes:
- A U.S. citizen (including a child),
- An individual who’s a resident alien (under the Internal Revenue Code) of the United States, the District of Columbia, the Indian lands (as defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the United States, and
- An entity, including a corporation, partnership, trust or limited liability company organized or formed under U.S. laws or the law of any State, the District of Columbia, the U.S. Territories, and Insular Possessions or Indian Tribes.
A “foreign financial account” is a financial account located outside the United States. This includes the states themselves as well as the District of Columbia, territories and possessions of the United States, and certain Indian lands. An account maintained with a branch of a U.S. bank that’s physically located outside of the United States is a foreign financial account. An account maintained with a branch of a foreign bank that’s physically located inside of the United States isn’t a foreign financial account.
A U.S. person has a financial interest in a foreign financial account if:
- The U.S. person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the U.S. person or for the benefit of another person, or
- The owner of record or holder of legal title is one of certain listed entities.
The entities mentioned in the second point may be certain entities controlled by the U.S. person or an agent, nominee, attorney or someone acting in another capacity on behalf of the U.S. person.
Penalty amounts and adjustments
Civil penalties for nonwillful violations can exceed $10,000 per violation, as adjusted for inflation. For willful violations, civil penalties can range up to the greater of $100,000 as adjusted for inflation or 50% of the amount in the account at the time of the violation.
Under the latest inflation adjustments, and for penalties assessed after February 19, 2020, the maximum FBAR penalty for a nonwillful failure to report a foreign financial account increases to $13,481. The penalty range for a willful failure to report a foreign financial account now begins at $134,806.
If you have a financial interest in, or signature or other authority over, a financial account in a foreign country, it is critical to comply with FBAR filing requirements. Contact your Elliott Davis advisor for all of your international planning and compliance questions.