FinCEN opens new route to file FBARs, as FATCA dragnet for same foreign accounts nears

Since 1976, US persons with bank accounts in other countries have been required to file the Foreign Bank Account Report with the Treasury Department. It was required by the Bank Secrecy Act, which was enacted in 1970, a momentous year in financial crime legislation because it also saw passage of the Racketeer Influenced and Corrupt Organizations Act (RICO).

The FBAR requires US persons to disclose financial accounts they hold in other countries that exceed a value of $10,000 at any time in the previous year.
This FBAR form, which has number TD F 90-22.1 and goes by the formal name “Report of Foreign Bank and Financial Accounts,” and the popular name FBAR (EFF-Bar) is believed to have one of the highest levels of noncompliance among all US financial crime-related reporting forms.

The US Financial Crimes Enforcement Network has now attached a booster engine to the FBAR. On July 29, 2013, the Treasury Department Bureau announced the release of FinCEN Form 114(a), Record of Authorization to Electronically File FBARs. The new form will allow a person required to file the form to authorize another person or entity to file the FBAR on his or her behalf.

The fast-approaching implementation of the Foreign Account Tax Compliance Act (FATCA) has the potential to greatly improve compliance with the filing of the FBAR. FATCA poses for US taxpayers who have dreams of escaping taxation by the Internal Revenue Service the real danger that their accounts at foreign institutions will be disclosed to the IRS by the country where the account is located.

Under FATCA, the IRS has issued IRS Form 8938, “Statement of Specified Foreign Financial Assets,” that many of the 670,000 US persons who filed FBARs in 2012 will also be required to file. The FBAR is not an IRS form and thus is different from the IRS FATCA form. The FBAR is not subject to the restrictions of IRS forms that impede information sharing among federal agencies.

Updated FinCEN Form 114(a) will curtail duplicative filings

The new FinCEN Form 114(a) simplifies the filing of FBARs by permitting spouses to sign and file the form together and to designate a third party, such as a tax preparer or CPA, to sign and file on their behalf. Previously, the act of signing the form had to be done directly by the account holder and could not be delegated.

Steve Hudak, Director of Public Affairs for FinCEN, explained to ACFCS, “That meant that if a married couple held a joint foreign account, they needed to both sign the same signature box or file two FBARs for the same account in order to satisfy the rules.”

FinCEN is working with tax software firms to include FBAR in products

“The new form Form 114(a) allows a tax preparer or accountant to file directly for their clients, rather than go through the extra exercise of getting a direct client signature on the FBAR,” Hudak continued.

“Most importantly, there won’t be any loss of information coming into FinCEN and being made available to law enforcement,” says Hudak.

“We continue to work with the major tax software providers so they can soon include FBAR filings in their products. This delegation authority makes that possible.”

New IRS FATCA form is different breed than FBAR, travels different road

The new IRS Form 8938, “Statement of Specified Foreign Financial Assets,” is a second cousin of the FBAR and is issued under the authority of the US tax code in Title 26 of the United States Code.

Bruce Zagaris, an international tax and financial crime specialist at Berliner, Corcoran & Rowe, in Washington, DC, told ACFCS the new IRS FATCA form “has importance because, while overlapping and similar to the FBAR, it has differences and significant penalties for taxpayers who violate it.”

“It requires significant work to complete. Therefore, it means taxpayers and their tax return preparers must do significant additional work or face penalties. From a compliance perspective, it gives the IRS additional tools especially because it is required to be attached to the individual tax returns, the IRS Form 1040,” Zagaris added.

No one can predict the coming impact of the interplay of data from the FBAR and the new FATCA IRS Form 8938 on US prosecutions or regulatory actions. One thing is sure: the chemistry this interplay produces has never been seen before.

The new IRS Form 8938, “Statement of Specified Foreign Financial Assets,” is a second cousin of the FBAR and is issued under the authority of the US tax code in Title 26 of the United States Code.

Bruce Zagaris, an international tax and financial crime specialist at Berliner, Corcoran & Rowe, in Washington, DC, told ACFCS the new IRS FATCA form “has importance because, while overlapping and similar to the FBAR, it has differences and significant penalties for taxpayers who violate it.”

“It requires significant work to complete. Therefore, it means taxpayers and their tax return preparers must do significant additional work or face penalties. From a compliance perspective, it gives the IRS additional tools especially because it is required to be attached to the individual tax returns, the IRS Form 1040,” Zagaris added.

No one can predict the coming impact of the interplay of data from the FBAR and the new FATCA IRS Form 8938 on US prosecutions or regulatory actions. One thing is sure: the chemistry this interplay produces has never been seen before.