No More June FBARs
IMGCAP(1)]This may be the last time you see a reminder that the FBAR (Report of Foreign Bank and Financial Accounts) filing deadline of June 30 is fast approaching. That’s because, beginning in 2017, the annual FBAR filing will coincide with the April 15 income tax filing deadline.
Unlike the April 15 deadline for filing income tax returns, the upcoming June 30 deadline is cast in stone for filing an FBAR to report ownership interests in or signature authority over foreign financial assets, according to Barbara T. Kaplan, shareholder and co-chair of the Global Tax Practice at Greenberg Traurig LLP.
“Timely mailing is timely filing when it comes to a taxpayer’s income tax return, but that is not true of the FBAR filing,” Kaplan said. “If you mail your income tax return on April 15 and it arrives at the IRS office on April 18, you have met the filing deadline. When it comes to the FBAR, however, that filing must be received by the Treasury on or before June 30 this year—period.”
And while taxpayers can request a six-month extension to October to file their income tax returns, no such extension is allowed for the FBAR filing. “However, these taxpayers on extension are the ones most likely to forget and miss this year’s June 30 FBAR deadline,” she observed.
At the bottom of Schedule B there are questions concerning foreign financial accounts (including brokerage accounts, bank accounts, insurance with cash value and other less obvious financial accounts) that relate to these foreign assets and direct the taxpayer to report on an FBAR. “Taxpayers on an extension usually never get to Schedule B until after the June 30 FBAR deadline has passed, and thus may be unaware of the FBAR filing requirement,” she said.
By the time they learn about the FBAR, the filing deadline has passed and the FBAR penalty can be imposed. Less sophisticated tax preparers may also not be paying attention to their client’s June 30 FBAR deadline.”
Beginning in 2017, not only will the annual FBAR filing coincide with the April 15 filing deadline, extensions will be permitted.
Beyond this harmonization of due dates, FBARs continue to generate broader compliance issues and related planning concerns, according to Kenneth P. Brier, CPA, Esq., a partner at Brier & Ganz LLP. “Given the draconian penalties for noncompliance, clients and advisers need to keep their guard up,” he said.
“Tax preparers appropriately rely on their clients to tell them if they have a financial interest in, or signature or other authority over, a reportable foreign account,” he added. “But a client may be completely unaware of such an interest or authority.”
A case in point, he observed, is where a client is designated as the agent of a third party owning a foreign account. “This could, in principle, create an FBAR filing responsibility,” he said. “Although the account is not titled in the name of the agent, the agent could have authority, even if shared, to control the disposition of money, funds or other assets.”
This has important implications for durable powers of attorney, Brier indicated.
“If Aunt Louise holds a foreign account above the $10,000 threshold and has signed a DPOA naming her nephew as her agent, then the nephew, in principle, could have an FBAR filing obligation whether he knows it or not,” Brier cautioned. “Actual signature authority might depend on whether the foreign country will recognize a U.S. DPOA, but who wants to chance the answer to that question? Though it is hard to see how the IRS could be so hard-hearted as to assess a non-filing penalty on such an innocent, it makes sense to avoid that possibility altogether.”
Brier suggested that a durable power of attorney specifically exclude any power over any foreign account unless the agent has expressly accepted such power. “That should avoid the problem of an inadvertent signature authority,” he said. “It is worth reviewing any DPOA for which a client knows another party has designated him or her as agent, to make sure it contains such an exclusion. Here a CPA can play a critical role as watchdog for the client, coordinating with the client’s lawyer as needed.”