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Compliance

Reports of Foreign Bank and Financial Accounts (FBARs)

PURPOSE

A Report of Foreign Bank and Financial Accounts (FBAR) is a document regularly submitted by certain citizens to help the government with criminal investigations, tax proceedings, antiterrorism intelligence, and other regulatory matters.

HISTORY

Requirements for foreign bank account reports were presented by the Bank Secrecy Act of 1970 and eventually finalized in federal statute. FBARs have been filed separately from federal tax returns since 1978, and the Internal Revenue Service (IRS) was officially designated as the FBAR enforcement authority in 2003. Requirements for FBARs were amended in 2011, and the Code of Federal Regulations was reorganized soon after, thus transferring the FBAR requirements to a new section of the U.S. Code. Additional amendments to the requirements were then proposed in 2016.

APPLICABILITY TO BYU–HAWAII

A. Regulated Entities

The requirement to file an FBAR applies to “a resident or citizen of the United States or a person in, and doing business in, the United States . . . when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency.”

Federal regulation further specifies that FBARs generally apply to “[e]ach United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country.” The regulations define the key terms “United States person,” “financial interest,” and “signature or other authority” as follows.

1. United States Person

A “United States person” is defined as either (1) a U.S. citizen or resident or (2) a U.S. company, trust, corporation, etc.

2. Financial Interest

For a person to have “financial interest,” the person can either (a) be the owner or title holder of a foreign account or (b) be involved in one of the following situations:

  1. . The person is being represented by a third party, and the third party is the account owner or title holder for a foreign account.
  2. The person controls a corporation or similar establishment by controlling over half of its capital, profits, votes, or share value, and the establishment is the account owner or
    title holder for a foreign account.
  3. The person owns a trust as reported on the person’s federal taxes and acts as the grantor of the trust, and the trust is the account owner or title holder for a foreign account.
  4. The person owns most of the income from a trust or “has a present beneficial interest” for most of the trust’s assets, and the trust is the account owner or title holder for a foreign
    account.

3. Signature or Other Authority

Persons have “[s]ignature or other authority” if they can directly authorize distributions from the foreign account, even if they must collaborate with other individuals to make the authorization valid. Exemptions are available for persons employed by certain banks, financial institutions, and other entities.

B. Brigham Young University–Hawaii

Because Brigham Young University owns no foreign account, it is not subject to FBAR reporting. Should the university establish foreign accounts as defined by the status, BYU–Hawaii would be required to file an FBAR for those foreign accounts (and any other accounts in which it has interest or authority) for years during which BYU–Hawaii’s combined foreign accounts contain more than $10,000.

REQUIREMENTS

C. Reports of Foreign Bank and Financial Accounts

According to the Financial Crimes Enforcement Network, “[t]he FBAR must be filed electronically through FinCEN’s BSA [Bank Security Act] E-Filing System.” The reports contain information about a person’s foreign accounts, including the value of the accounts. An additional form must be filled out if a third party submits the report on behalf of another person.

D. Account Balance Requirements

The FBAR needs to be filed only for years during which a person’s combined foreign accounts contain more than $10,000 “at any time during the calendar year.” Further, IRS guidance notes that “[a] person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income.”

E. Alternative Filing Arrangements

1. Simplified Reports for Several Accounts

An entity that would be required to file FBARs for at least twenty-five foreign accounts based on “financial interest” or twenty-five foreign accounts based on “signature or other authority” is allowed to file simplified reports consisting of “the number of financial accounts and certain other basic information.”

2. Consolidated FBARs for Owned Entities

If a parent entity owns (either directly or indirectly) more than a fifty percent interest in a subsidiary entity, the parent entity may “file a consolidated [FBAR] report” for itself and the subsidiary entity.

F. Recordkeeping

Federal guidance requires records pertaining to FBAR accounts—namely, “the name in which each account is maintained, the number or other designation of the account, the name and address of the foreign financial institution that maintains the account, the type of account, and the maximum account value of each account during the reporting period”—to be stored for five years following each filing deadline (or five years following the actual date of filing if the report is filed late).

PENALTIES

The FBAR penalties have changed incrementally over time. As of January 2017, the penalty limit for intentionally forgoing a required FBAR is $126,626 or half the balance of the unreported account (whichever is greater), and the penalty limit for non-willful failure is $12,663,31 with no penalty imposed “if there was reasonable cause for the violation.”

COMPLIANCE CALENDAR

The regulatory FBAR deadline is April 15, with an established six-month grace period.

Each year’s deadline applies to accounts held any time from January to December of the previous year.