Changes To Foreign Bank Account Reporting Rules For Financial Professionals Proposed

The Financial Crimes Enforcement Network (“FinCEN”), recently proposed rules that would amend the regulations regarding when a person must file a Report of Foreign Bank Account (“FBAR”) with the Department of the Treasury.  In proposing changes to the existing regulations on who must an FBAR, FinCEN noted that: ‘[t]he potential misuse of foreign financial accounts to evade domestic criminal, tax, and regulatory laws has been a long-held congressional concern.”  The proposed rules, if adopted, would impact certain financial professionals who hold signature authority over foreign financial accounts solely due to their employment as well as persons with a financial interest in or signature authority over 25 or more foreign accounts.  The notice of proposed rulemaking also includes a change to the FBAR filing deadline for 2017 (from June 30th to April 15th) and provisions regarding electronic filing of the FBAR forms.

Officers and employees of certain federally-regulated entities, including banks regulated by a federal banking agency and financial institutions registered with the Securities and Exchange Commission (“SEC”) or the Commodity Futures Trading Commission (“CFTC”), are currently exempt from filing FBARs where they have signature authority over a foreign account but no financial interest in the account.  The Notice of Proposed Rulemaking:

  • would expand the exemption to eliminate the requirement for all officers, employees, and agents of U.S. entities to report on accounts owned by the entity over which the officer, employee, or agent has signature authority solely due to their employment when those accounts are already required to be reported by their employer, or any other U.S. entity within the same corporate or other business structure as their U.S. employer.
  • would require employers to maintain information identifying all officers, employees, or agents with signature authority over, but no financial interest in, those same accounts. FinCEN proposes to require that this information be made available to FinCEN upon request and that such records be maintained for a period of 5 years.
  • would require all U.S. persons to report detailed account information on all foreign financial accounts for which they have a financial interest or signature authority in those instances in which a signature authority exemption does not apply—removing the existing limit on information required to be disclosed by persons holding a financial interest in or signature over 25 or more foreign financial accounts.

Importantly, under the proposed rules, the filing exemption would not extend to U.S. persons “in instances in which no entity within their employer’s corporate or other business structure has an obligation to report to FinCEN its financial interest in such account.”  Those persons would still be obligated to file an FBAR.

FinCEN has delegated the examination and enforcement authority over foreign financial account reporting to the IRS.  Thus, this latest notice must be viewed through the lens of the government’s current focus on offshore tax evasion and foreign bank account compliance.  The acquisition and mining of data has been and will continue to be an important aspect of the IRS and Department of Justice’s offshore tax enforcement program.  FinCEN recognized the need to acquire more data from persons holding 25 or more foreign financial accounts noting that:

In 2013, approximately 10,800 FBARs were filed by individuals or entities with financial interest in 25 or more foreign financial accounts. Those individuals or entities had a combined total of approximately 5,366,000 foreign financial accounts, which represents approximately 56% of the total number of all foreign financial accounts reported in 2013. As a result, FinCEN and law enforcement did not have detailed account information on any of these accounts because of the exemption for FBAR filers with 25 or more foreign financial accounts.

Companies or individuals with noncompliant offshore accounts have several options available to them including the IRS Offshore Voluntary Disclosure Program (“OVDP”) and streamlined compliance procedures for taxpayers who can certify their lack of willfulness.  U.S. citizens, residents, and legal entities with undeclared foreign accounts should consult counsel experienced in dealing with the IRS and Department of Justice, especially for the fact-sensitive assessment of willfulness.  “Willfulness” is a legal principle that, in theory at least, distinguishes knowing and intentional violations of the tax laws from mistaken or unintentional violations.  Not surprisingly, the government may take a different view than the taxpayer as to whether his or her conduct was willful.  This standard not only impacts the potential civil penalties imposed for failing to file an FBAR (Report of Foreign Bank and Financial Accounts) but will also be evaluated by the IRS and Department of Justice in determining whether to pursue a criminal prosecution.

For example, taxpayers who fail to file an FBAR when required by law face a civil penalty up to $10,000 per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50 percent of the balance in the account at the time of the violation, for each violation.  Willfully failing to file an FBAR when required by law to do so can also be prosecuted criminally as a felony offense with a maximum sentence of five years in prison and fines.  The government can proceed with both civil and criminal penalties for the same conduct and, depending on the circumstances, could have up to six years or more from the date of the violation to bring their case.

For more information, please contact Matt Mueller at mmueller@wiandlaw.com or 813.347.5142.  Mr. Mueller is a former federal prosecutor with the Department of Justice’s Tax Division and the U.S. Attorney’s Office in Tampa where he led investigations of white collar crimes including offshore tax evasion and taxpayers with undeclared foreign bank accounts.  He is Of Counsel in the Tampa office of Wiand Guerra King P.A.