Presented by Glen MacMillan – Adams & Miles LLP

Formerly known as “Form TD F 90-22.1”.

Now known as “FinCEN Form 114”.

Required to be filed if the aggregate value of all

foreign “financial accounts” which a “U.S. person”

has a “financial interest” in or “signature authority”

over exceeds $10,000 at any time during a

calendar year.

$10,000 threshold was set in 1970 and has never

been increased.

A financial account includes, but is not limited to, asecurities, brokerage, savings, demand, checking,deposit, time deposit, or other account maintained witha financial institution (or other person performing theservices of a financial institution).

A financial account also includes a commodity futuresor options account, an insurance policy with a cashvalue (such as a whole life insurance policy), anannuity policy with a cash value, and shares in amutual fund or similar pooled fund (i.e., a fund that isavailable to the general public with a regular net assetvalue determination and regular redemptions).

A foreign financial account is a financial account

located outside the U.S.

An account maintained with a branch of a U.S.

bank that is physically located outside the United

States is a foreign financial account.

An account maintained with a branch of a foreign

bank that is physically located in the U.S. is not a

foreign financial account.

Intent seems to be to identify accounts that are not

subject to existing U.S. reporting rules.

U.S. citizens and U.S. residents of any age.

Non-residents who meet the substantial presence test but claim

non-resident status under a tax treaty.

However, non-residents who timely file form 8840 to claim closer

connection to another country are not subject to FBAR reporting.

Entities, including but not limited to, corporations, partnerships,

limited liability companies trusts or estates created or organized

in the United States or under the laws of the United States.

A child is responsible for filing his or her own FBAR. If a child

cannot file for any reason, such as age, the child's parent,

guardian, or other legally responsible person must file it for the

child.

An entity disregarded for tax purposes is not

relieved from an obligation to file an FBAR.

For example, a disregarded LLC is still required to

file the FBAR.

A U.S. person has a financial interest in a foreignfinancial account for which:◦ The U.S. person is the owner of record or holder of legal

title, regardless of whether the account is maintained forthe benefit of the U.S. person or for the benefit of anotherperson,

◦ The owner of the account is a corporation in which theU.S. person owns directly or indirectly (i) more than 50%of the total value of shares of stock or (ii) more than 50%of the voting power of all shares of stock, or

◦ The owner of the account is a partnership, trust or anyother entity where the U.S. person has more than a 50%interest.

Signature authority is the authority of an individual

(alone or with another individual) to control the

disposition of assets held in a foreign financial

account by direct communication (whether in

writing or otherwise) to the bank or other financial

institution that maintains the financial account.

For example, a son with signing authority over (but

no financial interest in) his elderly parents’ foreign

bank account.

A spouse is not required to file a separate FBAR if◦ all financial accounts of the non-filing spouse are jointly

owned with the filing spouse,

◦ the filing spouse reports the jointly owned accounts on a

timely filed FBAR, and

◦ Form 114a is signed by non-filing spouse and retained in

filing spouse’s records.

In all other cases, both spouses must file separate

FBARs and both must report the entire value of

jointly owned accounts.

FBARs must be efiled.

Filers can efile their own FBARs on FinCEN’s website at

http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

The online efiling process is relatively straightforward.

Assistance available by calling E-Filing Help Desk 1-866-

346-9478 (option 1) or via email BSAEFilingHelp@fincen.gov

Detailed FBAR instructions can be found at

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20

Filing%20Instructions.pdf

Third party preparers efiling FBARs on behalf of clients must

obtain client consent with form 114a “Record of Authorization

to Electronically File FBARs”.

Must be efiled on or before June 30th of the year

immediately following the calendar year being

reported.

No extension of time available for filing an

FBAR.

Extensions of time to file federal tax returns do

not extend the June 30th FBAR due date.

New law provides that the FBAR due date “shall

be April 15 with a maximum extension for a 6-

month period ending on October 15 and with

provision for an extension under rules similar to

the rules in Treas. Reg. section 1.6081–5…….”

It appears U.S. citizens living outside the U.S.

should have an automatic extension to June 15

to file both the 1040 and FBAR.

Filers can request an extension to file the FBAR to

October 15th by filing an extension that is expected

to be similar to Form 4868.

For first time FBAR filers, the new law allows the

IRS to waive penalties for failure to timely file an

extension request.

Not clear whether any changes are forthcoming

for FBAR filers that are not individuals.

The following are not required to file an FBAR◦ An entity named in a consolidated FBAR filed by a

greater than 50 percent owner.

◦ Governmental entities.

◦ Owner or beneficiary of an IRA.

◦ Beneficiary of a retirement plan is not required to report a

foreign financial account held by or on behalf of the

retirement plan.

Part I - Filer Information◦ Relatively straightforward information about the filer

◦ Name, address, SSN/EIN, date of birth (if applicable),

etc.

◦ See separate FBAR instructions for Box 14a and 14b if

filer has a financial interest in or signature authority over

25 or more foreign financial accounts.

Part II - Information on financial account(s) ownedseparately◦ Disclose type of account, account number, name and

address of financial institution where account is located,maximum value in the account during the year.

◦ Maximum values must be reported in US$.

◦ Convert foreign currency amounts to US$ using the year-end exchange rate even if the maximum value has beendetermined at some other date.

◦ A movement of funds between foreign accounts results inthose funds being included in the maximum valuedetermination for each account.

Part III - Information on financial account(s) ownedjointly◦ Same account information as required for separately owned

accounts.

◦ Maximum value reported for joint accounts is the maximumgross value in the account; the value is not reduced to reflectthe joint owner’s prorate share of the account.

◦ Additional information includes reporting the number of jointowners and identification of the “principal joint owner”.

◦ A spouse is always the principal joint owner of a jointly ownedaccount.

◦ For joint accounts with non-spouses, the term “principal jointowner” is undefined.

Part IV - Information on Financial Account(s)

where filer has signature or other authority but no

financial interest in the account(s)

◦ Example: a U.S. person with signing authority over a

parent’s foreign account.

Part IV – Signature authority over employer

accounts◦ Example: A U.S. person has signing authority over bank

account of an arm’s length employer.

◦ A U.S. person who (1) lives outside the U.S. (2) is an

employee of an employer located outside the U.S. and

(3) has signature authority over a foreign financial

account of the employer only needs to report basic

identifying information about the employer one time.

◦ Detailed information about the value and location of the

account(s) is not required.

Additional Part IV exceptions from reporting

◦ Employees of banks subject to U.S. examiners.

◦ Employees of financial institutions and certain other

Entities subject to SEC examinations.

◦ Employees of certain entities controlled by U.S. publicly

traded entities.

◦ Various other miscellaneous employee exceptions.

Part V - Information on financial account(s) where

filer is filing a consolidated report

◦ A U.S. entity that owns directly or indirectly a greater than

50 percent interest in another entity that is required to file

an FBAR is permitted to file a consolidated FBAR on

behalf of itself and the other entity.

A person who is required to file an FBAR and fails to

properly file is subject to a $10,000 penalty.

If there is reasonable cause for the failure and the

balance in the account is properly reported, no penalty

will be imposed.

A person who willfully fails to report an account or

disclose required information may be subject to a

penalty equal to the greater of $100,000 or 50 percent

of the balance in the account at the time of the

violation.

Willful violations may be subject to criminal penalties.

Questions?

Presented by Glen MacMillan – Adams & Miles LLP

Form 8938 was introduced for the 2011 tax year.

The form captures information about the location of anindividual’s foreign accounts and the amount ofincome reported on the 1040 from foreign accounts.

Filing the 8938 does not relieve an individual of therequirement to file the FBAR even though the contentand purpose of the 8938 and the FBAR appearcomparable.

Form 8938 must be filed with a 1040 or 1040NRincome tax return.

If an individual is not required to file a tax return, form8938 is not required under any circumstances.

U.S. citizens, resident aliens and certain non-residents ifthe value of “specified foreign financial assets” exceedstheir “reporting threshold”.

Non-residents who meet the substantial presence test andclaim non-resident status under a tax treaty between theirhome country and the U.S.

Non-resident aliens who elect to be treated as residentaliens for purposes of filing a joint income tax return.

Non-resident aliens who are residents of American Samoaor Puerto Rico.

At this time, only individuals must file form 8938 but thereare indications from the IRS that the obligation to file form8938 may be expanded to other domestic entities.

Similar to the FBAR definition.

Financial accounts maintained by a foreign financialinstitution

Foreign financial assets if held for investment and notheld in an account maintained by a financial institution:◦ Stock of a foreign corporation, interests in foreign partnerships,

notes and bonds issued by foreign persons, interest in aforeign trust or estate, interest rate swaps, currency swaps,derivative instruments, currency and commodity options with aforeign person.

Specified foreign financial assets owned by grantortrusts and disregarded entities in which the taxpayerhas an ownership interest.

Accounts owned by children

◦ If a parent files form 8814 “kiddie tax” election to

include in gross income certain unearned income of

the child, the parent has an interest in any specified

foreign financial asset owned by the child.

Unmarried taxpayers and married taxpayers filing

separate returns:

◦ Total value of specified foreign financial assets is more

than $50,000 on the last day of the year or more than

$75,000 at any time during the year.

Married taxpayers filing joint returns:

◦ total value of specified foreign financial assets is more

than $100,000 on the last day of the year or more than

$150,000 at any time during the tax year.

Unmarried taxpayers and married taxpayers filing

separate returns :

◦ total value of specified foreign financial assets is more

than $200,000 on the last day of the year or more than

$300,000 at any time during the year.

Married taxpayers filing joint returns:

◦ total value of specified foreign financial assets is more

than $400,000 on the last day of the year or more than

$600,000 at any time during the tax year.

All values must be reported in US$’s.

Maximum value of a specified foreign financial assetdenominated in a foreign currency must be first determinedin the foreign currency and then converted to U.S. dollars.

Use the year-end exchange rate to convert to US$’s even ifthe maximum value is determined on a date other than thelast day of the year.

Report the maximum value of an entire account, even if theaccount is owned jointly with a spouse or another person.

Periodic account statements, such as monthly brokeragestatements, may be relied on to ascertain maximum valueunless the taxpayer is aware that these statements do notreflect the true maximum value during the year.

For assets not held in a foreign financial account,

the individual may use the value on the last day of

the year, unless the individual is aware the year-

end value is not a reasonable estimate of the

maximum value of the asset during the year.

Special rules apply for valuing interests in foreign

trusts, foreign pension plans and foreign deferred

compensation plans.

A joint owner (excluding spouses) is considered to

have an interest in the entire asset and must

report the maximum value of the entire asset.

Married individuals:◦ MFJ filers - report specified foreign financial assets

owned jointly only once and include the maximum value

of the entire asset.

◦ MFS filers - both spouses report specified foreign

financial assets owned jointly and both must report the

maximum value of the entire asset.

In addition to the maximum value of specifiedforeign financial assets, an individual must reportthe following amounts earned from foreign assetsand disclose where in the tax return the amountshave been reported:◦ Interest

◦ Dividends

◦ Royalties

◦ Income

◦ Gains or losses

◦ Deductions

◦ Credits

Foreign rental properties owned personally are not

included in the definition of “specified foreign financial

assets”.

If the purpose of form 8938 is to identify the location of

and income earned from passive foreign assets, query

why foreign rental properties are excluded.

An asset does not need to be reported on form 8938 if

the asset is reported on one of more of the following

forms:

◦ Form 3520 “Annual Return To Report Transactions With

Foreign Trusts and Receipt of Certain Foreign Gifts”

◦ Form 5471 “Information Return of U.S. Persons With

Respect To Certain Foreign Corporations”

◦ Form 8621 ”Information Return by a Shareholder of a

Passive Foreign Investment Company or Qualified Electing

Fund”

◦ Form 8865 “Return of U.S. Persons With Respect to Certain

Foreign Partnerships”

Failure to file penalty:◦ $10,000 penalty

Continuing failure to file penalty:

◦ If an individual does not file a correct and complete

form 8938 within 90 days after the IRS mails a notice

of the failure to file, the individual may be subject to an

additional penalty of $10,000 for each additional 30

day period during which the failure continues, up to a

maximum additional penalty of $50,000.

No penalty will be imposed if individual fails to

file form 8938 or to disclose one or more

specified foreign financial assets on form 8938

and the failure is due to reasonable cause and

not to willful neglect.

Must affirmatively show the facts that support a

reasonable cause claim.

This language seems stronger than the FBAR

reasonable cause exception.

Questions?