Taxpayer Filing Requirements for Foreign Accounts

If your client has a financial interest in, or signature authority over, any foreign accounts, certain filing requirements with the U.S. Department of the Treasury, in addition to the Internal Revenue Service (IRS) may apply. Filing requirements may also apply to taxpayers that have direct or indirect control over a foreign or domestic entity with foreign financial accounts, even if the taxpayer does not have foreign account(s).

The filing deadline for the Report of Foreign Bank and Financial Accounts (FBAR) required by the U.S. Department of the Treasury is April 15th and follows the federal income tax due date guidance, which notes that if the tax due date falls on a weekend or legal holiday, the form is considered timely filed if filed on the next business day. An automatic 6-month extension is available. Electronic filing of the FBAR is mandatory using the Bank Secrecy Act (BSA) e-filing system for the Financial Crimes Enforcement Network (FinCEN). Tax preparers must receive a signed consent form from the client prior to submitting the foreign reporting form. If the tax preparer does not receive the client’s signed authorization to file the client’s foreign reporting form, the tax preparer will not be able to file any of the required disclosure statements on the client’s behalf.

Additionally, the IRS requires information reporting on foreign interests or activities under applicable IRC sections and related regulations, and the respective IRS tax forms are due when the client’s income tax return is due, including extensions. The IRS reporting requirements are in addition to the U.S. Department of the Treasury reporting requirements stated above. Therefore, if the client has any direct or indirect foreign interests that require disclosures to the IRS, the client must provide the tax preparer with the information necessary to prepare the applicable IRS forms.

Failure to timely file the appropriate forms with the U.S. Department of the Treasury and the IRS may result in substantial civil and/or criminal penalties.

The tax preparer should obtain the client’s signature on the engagement letter indicating that the client agrees to provide the tax preparer with complete and accurate information regarding any foreign accounts that the client and/or the client’ entity may have had a direct or indirect interest in, or signature authority over, during the tax year referenced in the engagement letter. The foreign reporting requirements are very complex, so if the client has any questions regarding the application of the U.S. Department of the Treasury and/or the IRS reporting requirements to the client’s foreign interests or activities, encourage the client to ask for advice in that regard. The tax preparer should also advise the client that the tax preparer assumes no liability for penalties associated with the failure to file or untimely filing of any of these forms.

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