Information About the Report of Foreign Bank and Financial Accounts

Published on June 26, 2012.

To Our Clients and Friends:

Each U.S. person who has a financial interest in or signature or other authority over foreign bank accounts, securities accounts or other financial accounts must file a Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts or FBAR) if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. A “foreign financial account” is a financial account located outside the U.S. An account maintained with a branch of a U.S. bank that is physically located outside of the U.S. is a foreign financial account. A financial account includes a securities, brokerage, savings, demand, checking, deposit, time deposit or other account maintained with a financial institution. A financial account also includes a commodity futures or options account, an insurance policy or annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. In addition, a debit card account is a financial account, and a credit card account may be treated as a financial account under certain circumstances. The FBAR is due by June 30 following the calendar year for which it applies. Thus, FBARs for the 2011 calendar year must be filed on or before June 30, 2012.   The penalties for failure to file a FBAR are onerous. The civil penalties for a non-willful violation may not exceed $10,000 per violation. Civil penalties for a willful violation may not exceed the greater of $100,000 or 50% of the amount in the account at the time of the violation. The criminal penalty for willful violations is a fine of not more than $250,000, or imprisonment for not more than five years, or both.   In addition, a specified individual must file Form 8938 if the individual has an interest in one or more specified foreign financial assets and those assets have an aggregate Fair Market Value (FMV) exceeding either $50,000 on the last day of the tax year or $75,000 at any time during the tax year ($100,000 and $150,000, respectively, for married individuals filing a joint annual return). This reporting threshold is increased for a specified individual who is a qualified individual under Code Sec. 911(d)(1), i.e., one who has a tax home in a foreign country and who is: (1) a U.S. citizen and establishes to IRS’s satisfaction that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire tax year, or (2) a U.S. citizen or resident who is physically present in a foreign country for at least 330 full days during any period of 12 consecutive months. Such an individual is not required to file Form 8938 unless the aggregate value of the specified foreign financial assets in which he has an interest exceeds $200,000 ($400,000 if a joint return is filed) on the last day of the tax year or $300,000 ($600,000 if a joint return is filed) at any time during the tax year. An individual is not required to file Form 8938 for any tax year for which he is not required to file an annual return.   A specified individual is a U.S. citizen, a U.S. resident alien for any part of the tax year, a nonresident alien who makes an election to be treated as a U.S. resident alien and a nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.   Specified foreign financial assets include financial accounts maintained by foreign financial institutions and other assets not held in accounts maintained by financial institutions, such as stock or securities issued by non-U.S. persons, financial instruments or contracts with issuers or counterparties that are non-U.S. persons, and interests in certain foreign entities. However, no disclosure is required for interests that are held in a custodial account with a U.S. financial institution.   The penalty for failing to report specified foreign financial assets for a tax year is $10,000. However, if this failure continues for more than 90 days after the day on which the IRS mails notice of the failure to the individual, additional penalties of $10,000 will be imposed for each 30-day period (or fraction of the 30-day period) during which the failure continues after the expiration of the 90-day period, with a maximum penalty of $50,000.   If you want to file, or are uncertain whether you are, or will be, required to file, a FBAR or a Form 8938 for the current year or for a past year, please give us a call to discuss your situation and the best way to proceed.

Very truly yours,

Gold Gerstein Group LLC

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