Dayle O. Blair, Contributor
Fellow Jamaicans, I direct your attention to St Luke 2:1, where it reads: "and it came to pass, that there went out a decree from Caesar Augustus that all the world should be taxed". While President Obama is not Caesar, America is one of the countries that taxes its citizens on their worldwide income. So in trying to tax Americans wherever in the world they earn income, the Foreign Bank Account Reporting (FBAR) was introduced to enquire for bank account information.
A 2008 US Senate report concluded that Americans keeping money in offshore accounts cost the US Treasury at least US$100 billion annually. President Obama has said that there is one address in the Cayman Islands where over 19,000 Americans invest money offshore.
The US State Department estimates that more than five million Americans live abroad and the IRS said more than one million FBARs should be filed annually. The best year has shown more than 600,000 filings. It means that there is about 60 per cent compliance. This filing has been a requirement since 1970 as part of the Bank Secrecy Act. Filing is due April 15 or the due date of extended return; and in other instances, by June 30. Persons are required to provide the following information: name the country, name of bank, address of bank, account number, sum in the account; the date the account was opened; and signatories to the account.
Who is required to file an FBAR?
An FBAR must be filed if all of the following requirements are satisfied: the filer is a US person, has a financial account, the financial account is in a foreign country, has a financial interest in, or signature or other authority over, the financial account; and the aggregate account balance of all such foreign accounts exceed US$10,000 at any time during the calendar year.
Who is a 'US Person'?
For the purpose of FBAR, a US person includes: A citizen of the US, a resident alien of the US, and a US corporation, partnership, trust, limited liability company, or other type of business entity. With respect to Jamaica, a US person generally includes: expatriates, US citizens and residents residing abroad, certain foreign citizens who are working and paying taxes in the US, and individuals who are required to file FBARs annually, even if they maintain joint accounts with a non-US spouse.
What is a reportable financial account?
'Account' is broadly defined to include any foreign "bank, securities, or other financial accounts". "Bank accounts" include savings deposits, demand deposits, checking/current accounts, and any other accounts maintained with a person engaged in the business of banking.
'Securities accounts' include accounts maintained with a person in the business of buying, selling, holding, or trading stock or other securities
'Other financial accounts' include:
An account with a person who is in the business of accepting deposits as a financial agency, an account that is an insurance policy with a cash value or an annuity policy; an account with a person who acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association; or an account with a mutual fund/unit trust or similar pooled fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions (does not include hedge funds).
What is a 'financial interest'?
A person has a 'financial interest' in a foreign account if he or she is the owner of record of, or has legal title to, the account, regardless of whether the account is maintained for his or her own benefit or for the benefit of others.
A US person also has a reportable financial interest in a foreign bank account if the account is held by: an agent, nominee, or attorney on behalf of the US person; a corporation in which the US person owns more than 50 per cent of the voting power or the total value of the shares, and a partnership in which the US person owns directly or indirectly more than 50 per cent of the interest in profits or capital.
What is 'signature authority'?
This refers to the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication to the person with whom the financial account is maintained. The test for determining whether an individual has signature or other authority over an account is whether the foreign financial institution will act upon a direct communication from that individual regarding the disposition of assets in that account. The regulations also exempt certain individuals with signature or other authority over, but no financial interest in, foreign accounts.
Please try to comply with Uncle Sam's FBAR requirements as the consequences of non-compliance can be 'deadly'. The IRS is now in the process of employing 2,000 agents just to deal with offshore tax cheats, and FBAR is worse than the much-talked-about FACTA that many people are nervous about.
FBAR filing exemptions
Certain accounts jointly owned by spouses (only one FBAR required), consolidated FBAR for certain entities, correspondent accounts owned by banks, US government accounts , IRA owners and beneficiaries, participants/beneficiaries of tax-qualified retirement plans, and individuals with signature authority only in the following situations:
Officer/employee of a federally regulated bank
Officer/employee of a financial institution regulated by SEC or CFTC
Officer/employee of Authorised Service Provider with respect to registered investment company
Officer/employee of publicly traded company (or its subsidiary)
Certain trust beneficiaries
Accounts maintained at US military banking facilities.
FBAR penalties for non-compliance
Criminal penalties for wilful violations: Where a US person knows of the requirement and fails to file:
Up to 5 years' imprisonment and a $250,000 fine.
Non-wilful violation: Up to $10,000 for each violation i.e. each year that the US person has not filed.
Wilful violation: Greater of $100,000 or 50 per cent of the balance in the account at the time of the violation. Both civil and criminal penalties can be imposed together.
Tax-preparer obligations for FBAR
Pursuant to the Office of Professional Responsibility and the Report of Foreign Bank and Financial Account, practitioners who prepare an individual's Form 1040 have a duty to inquire of their clients with sufficient detail to prepare proper and correct responses to the foreign bank account questions. Good-faith reliance contemplates that a practitioner will make reasonable inquiries when a client provides information that implies possible participation in overseas transactions/accounts subject to FBAR requirements."
Preparer has no obligation to prepare FBAR for taxpayer, but "does have an affirmative obligation to advise the client of the need to file the FBAR form and the consequences of failing to do so. A practitioner whose client declines to make full disclosure of the existence of, or any taxable income from, a foreign financial account during a taxable year, may not prepare the client's income tax return for that year without being in violation of professional responsibility, and may be subject to fines and penalties.
Dayle O. Blair is an attorney-at-law, certified public accountant and a
certified international tax advisor. He can be reached for comments at