Report of Foreign Bank and Financial Accounts FINCEN Form 114

Official Treasury Currency Conversion Rates of December 31, 2009

These Official Treasury 2009 FBAR Conversion Rates are posted here due to the fact that U.S. taxpayers who are doing voluntary disclosure for prior years with respect to delinquent FBARs are required to use these rates to prepare the FBARs for 2009.  Every year, the U.S. Department of Treasure publishes its official currency conversion rates (they are called “Treasury’s Financial Management Service rates”); I will refer to the “FBAR Conversion Rates”.

The latest (October 2013) FBAR instructions require the use of Treasury’s Financial Management Service rates, if available, to determine the maximum value of a foreign bank account. In particular, the FBAR instructions state:

In the case of non-United States currency, convert the maximum account value for each account into United States dollars. Convert foreign currency by using the Treasury’s Financial Management Service rate (this rate may be found at www.fms.treas.gov) from the last day of the calendar year. If no Treasury Financial Management Service rate is available, use another verifiable exchange rate and provide the source of that rate. In valuing currency of a country that uses multiple exchange rates, use the rate that would apply if the currency in the account were converted into United States dollars on the last day of the calendar year.

For this reason, the international tax attorneys take their time to compile these rates with all updates. For your convenience, Sherayzen Law Office provides a table of the official  2009 FBAR Conversion Rates below (keep in mind, you still need to refer to the official website for any updates).

COUNTRY-CURRENCY F.C. TO $1.00
AFGHANISTAN – AFGHANI 47.9200
ALBANIA – LEK 95.4300
ALGERIA – DINAR 70.3330
ANGOLA – KWANZA 75.0000
ANTIGUA – BARBUDA – E. CARIBBEAN DOLLAR 2.7000
ARGENTINA-PESO 3.7980
ARMENIA – DRAM 375.0000
AUSTRALIA – DOLLAR 1.1110
AUSTRIA – EURO 0.6950
AZERBAIJAN – MANAT 0.8200
BAHAMAS – DOLLAR 1.0000
BAHRAIN – DINAR 0.3770
BANGLADESH – TAKA 68.0000
BARBADOS – DOLLAR 2.0200
BELARUS – RUBLE 2880.0000
BELGIUM-EURO 0.6950
BELIZE – DOLLAR 2.0000
BENIN – CFA FRANC 454.8900
BERMUDA – DOLLAR 1.0000
BOLIVIA – BOLIVIANO 6.9700
BOSNIA-HERCEGOVINA MARKA 1.3590
BOTSWANA – PULA 6.6530
BRAZIL – REAL 1.7400
BRUNEI – DOLLAR 1.4010
BULGARIA – LEV 1.3580
BURKINA FASO – CFA FRANC 454.8900
BURMA – KYAT 450.0000
BURUNDI – FRANC 1200.0000
CAMBODIA (KHMER) – RIEL 4163.0000
CAMEROON – CFA FRANC 454.8900
CANADA – DOLLAR 1.0510
CAPE VERDE – ESCUDO 74.7270
CAYMAN ISLANDS – DOLLAR 0.8200
CENTRAL AFRICAN REPUBLIC – CFA FRANC 454.8900
CHAD – CFA FRANC 454.8900
CHILE – PESO 507.0000
CHINA – RENMINBI 6.8260
COLOMBIA – PESO 2046.5000
COMOROS – FRANC 361.3500
CONGO – CFA FRANC 454.8900
COSTA RICA – COLON 553.7000
COTE D’IVOIRE – CFA FRANC 454.8900
CROATIA – KUNA 5.0000
CUBA-PESO 0.9260
CYPRUS-EURO 0.6950
CZECH – KORUNA 18.1190
DEM REP OF CONGO-CONGOLESE FRANC 900.0000
DENMARK – KRONE 5.1670
DJIBOUTI – FRANC 177.0000
DOMINICAN REPUBLIC – PESO 36.1000
EAST TIMOR-DILI 1.0000
ECAUDOR-DOLARES 1.0000
EGYPT – POUND 5.4840
EL SALVADOR-DOLARES 1.0000
EQUATORIAL GUINEA – CFA FRANC 454.8900
ERITREA – NAKFA 15.0000
ESTONIA – KROON 10.8650
ETHIOPIA – BIRR 12.6400
EURO ZONE – EURO 0.6950
FIJI – DOLLAR 1.9250
FINLAND-EURO 0.6950
FRANCE-EURO 0.6950
GABON – CFA FRANC 454.8900
GAMBIA – DALASI 27.0000
GEORGIA-LARI 1.6900
GERMANY FRG-EURO 0.6950
GHANA – CEDI 1.4290
GREECE-EURO 0.6950
GRENADA – EAST CARIBBEAN DOLLAR 2.7000
GUATEMALA-QUENTZEL 8.3320
GUINEA -FRANC 4924.0000
GUINEA BISSAU – CFA FRANC 454.8900
GUYANA – DOLLAR 201.0000
HAITI – GOURDE 40.7500
HONDURAS – LEMPIRA 18.9000
HONG KONG – DOLLAR 7.7540
HUNGARY – FORINT 187.7700
ICELAND – KRONA 124.4500
INDIA – RUPEE 46.4000
INDONESIA – RUPIAH 9350.0000
IRAN – RIAL 8229.0000
IRAQ – DINAR 1150.0000
IRELAND-EURO 0.6950
ISRAEL-SHEKEL 3.7800
ITALY-EURO 0.6950
JAMAICA – DOLLAR 89.3000
JAPAN – YEN 92.3900
JERESALEM-SHEKEL 3.7800
JORDAN – DINAR 0.7080
KAZAKHSTAN – TENGE 148.4000
KENYA – SHILLING 75.8500
KOREA – WON 1163.6500
KUWAIT – DINAR 0.2860
KYRGYZSTAN – SOM 44.0000
LAOS – KIP 8476.0000
LATVIA – LATS 0.4920
LEBANON – POUND 1500.0000
LESOTHO – SOUTH AFRICAN RAND 7.3690
LIBERIA – U.S. DOLLAR 49.0000
LIBYA-DINAR 1.2340
LITHUANIA – LITAS 2.3980
LUXEMBOURG-EURO 0.6950
MACAO – MOP 8.0000
MACEDONIA FYROM – DENAR 42.3000
MADAGASCAR-ARIA 1954.6400
MALAWI – KWACHA 146.0000
MALAYSIA – RINGGIT 3.4220
MALI – CFA FRANC 454.8900
MALTA-EURO 0.6950
MARSHALLS ISLANDS – DOLLAR 1.0000
MARTINIQUE-EURO 0.6950
MAURITANIA – OUGUIYA 270.0000
MAURITIUS – RUPEE 29.0000
MEXICO – NEW PESO 13.0990
MICRONESIA – DOLLAR 1.0000
MOLDOVA – LEU 12.1850
MONGOLIA – TUGRIK 1435.8800
MONTENEGRO-EURO 0.6950
MOROCCO – DIRHAM 7.9030
MOZAMBIQUE – METICAL 29.2800
NAMIBIA-DOLLAR 7.3690
NEPAL – RUPEE 74.4000
NETHERLANDS-EURO 0.6950
NETHERLANDS ANTILLES – GUILDER 1.7800
NEW ZEALAND – DOLLAR 1.3740
NICARAGUA – CORDOBA 20.8400
NIGER – CFA FRANC 454.8900
NIGERIA – NAIRA 149.4500
NORWAY – KRONE 5.7640
OMAN – RIAL 0.3850
PAKISTAN – RUPEE 84.2000
PALAU-DOLLAR 1.0000
PANAMA – BALBOA 1.0000
PAPUA NEW GUINEA – KINA 2.5230
PARAGUAY – GUARANI 4650.0000
PERU – INTI 0.0000
PERU – NUEVO SOL 2.8900
PHILIPPINES – PESO 46.4500
POLAND – ZLOTY 2.8500
PORTUGAL-EURO 0.6950
QATAR – RIYAL 3.6420
ROMANIA – LEU 2.9420
RUSSIA-RUBLE 30.3110
RWANDA – FRANC 569.4700
SAO TOME & PRINCIPE – DOBRAS 16539.2150
SAUDI ARABIA – RIYAL 3.7500
SENEGAL – CFA FRANC 454.8900
SERBIA-DINAR 66.7300
SEYCHELLES – RUPEE 10.9180
SIERRA LEONE – LEONE 3930.0000
SINGAPORE – DOLLAR 1.4010
SLOVAK-EURO 0.6950
SLOVENIA-EURO 0.6950
SOLOMON ISLANDS – DOLLAR 7.3580
SOUTH AFRICA – RAND 7.3690
SPAIN-EURO 0.6950
SRI LANKA – RUPEE 114.3500
ST LUCIA – EC DOLLAR 2.7000
SUDAN-POUND 2.3140
SURINAME – GUILDER 2.8000
SWAZILAND – LILANGENI 7.3690
SWEDEN – KRONA 7.1160
SWITZERLAND – FRANC 1.0310
SYRIA – POUND 45.5000
TAIWAN – DOLLAR 31.9500
TAJIKISTAN-SOMONI 4.3800
TANZANIA – SHILLING 1335.0000
THAILAND – BAHT 33.3000
TOGO – CFA FRANC 454.8900
TONGA – PA’ANGA 1.8760
TRINIDAD & TOBAGO – DOLLAR 6.3300
TUNISIA – DINAR 1.3180
TURKEY-LIRA 1.4930
TURKMENISTAN – MANAT 2.8430
UGANDA – SHILLING 1895.0000
UKRAINE – HRYVNIA 8.0300
UNITED ARAB EMIRATES – DIRHAM 3.6730
UNITED KINGDOM – POUND STERLING 0.6160
URUGUAY – NEW PESO 19.4500
UZBEKISTAN – SOM 1525.0000
VANUATU – VATU 96.0900
VENZEULA – NEW BOLIVAR 2.1500
VIETNAM – DONG 18469.0000
WESTERN SAMOA – TALA 2.5190
YEMEN – RIAL 206.0000
YUGOSLAVIA – DINAR 66.7300
ZAMBIA-KWACHA 4640.0000
ZIMBABWE – DOLLAR 0.0000

Official Treasury Currency Conversion Rates of December 31, 2013 – 2013 FBAR Conversion Rates

Every year, the U.S. Department of Treasure publishes its official currency conversion rates (they are called “Treasury’s Financial Management Service rates”); I will refer to the “FBAR Conversion Rates”. Recently, the Treasury Department published the FBAR Conversion rates for December 31, 2013. While there are other good reasons for the existence of these rates, the 2013 FBAR Conversion Rates are especially important for persons who are required to file the FBARs.

The latest (October 2013) FBAR instructions require the use of Treasury’s Financial Management Service rates, if available, to determine the maximum value of a foreign bank account. In particular, the FBAR instructions state:

In the case of non-United States currency, convert the maximum account value for each account into United States dollars. Convert foreign currency by using the Treasury’s Financial Management Service rate (this rate may be found at www.fms.treas.gov) from the last day of the calendar year. If no Treasury Financial Management Service rate is available, use another verifiable exchange rate and provide the source of that rate. In valuing currency of a country that uses multiple exchange rates, use the rate that would apply if the currency in the account were converted into United States dollars on the last day of the calendar year.

For this reason, the international tax attorneys take their time to compile these rates with all updates. For your convenience, Sherayzen Law Office provides a table of the official  2013 FBAR Conversion Rates below (keep in mind, you still need to refer to the official website for any updates).

 

Country – Currency

Foreign Currency to $1.00

AFGHANISTAN – AFGHANI

56.0000

ALBANIA – LEK

101.7000

ALGERIA – DINAR

78.0250

ANGOLA – KWANZA

95.0000

ANTIGUA – BARBUDA – E. CARIBBEAN DOLLAR

2.7000

ARGENTINA – PESO

6.5180

ARMENIA – DRAM

404.0000

AUSTRALIA – DOLLAR

1.1200

AUSTRIA – EURO

0.7260

AZERBAIJAN – NEW MANAT

0.8000

BAHAMAS – DOLLAR

1.0000

BAHRAIN – DINAR

0.3770

BANGLADESH – TAKA

79.0000

BARBADOS – DOLLAR

2.0200

BELARUS – RUBLE

9510.0000

BELGIUM – EURO

0.7260

BELIZE – DOLLAR

2.0000

BENIN – CFA FRANC

475.0000

BERMUDA – DOLLAR

1.0000

BOLIVIA – BOLIVIANO

6.8600

BOSNIA-HERCEGOVINA MARKA

1.4210

BOTSWANA – PULA

8.7490

BRAZIL – REAL

2.3620

BRUNEI – DOLLAR

1.2540

BULGARIA – LEV

1.4210

BURKINA FASO – CFA FRANC

475.0000

BURMA – KYAT

980.0000

BURUNDI – FRANC

1540.0000

CAMBODIA (KHMER) – RIEL

4103.0000

CAMEROON – CFA FRANC

476.5400

CANADA – DOLLAR

1.0640

CAPE VERDE – ESCUDO

80.3030

CAYMAN ISLANDS – DOLLAR

0.8200

CENTRAL AFRICAN REPUBLIC – CFA FRANC

475.0000

CHAD – CFA FRANC

476.5400

CHILE – PESO

525.3200

CHINA – RENMINBI

6.0540

COLOMBIA – PESO

1924.9800

COMOROS – FRANC

361.3500

CONGO – CFA FRANC

475.0000

CONGO, DEM. REP – CONGOLESE FRANC

920.0000

COSTA RICA – COLON

495.2000

COTE D’IVOIRE – CFA FRANC

475.0000

CROATIA – KUNA

5.4600

CUBA-PESO

1.0000

CYPRUS – EURO

0.7260

CZECH – KORUNA

19.4570

DENMARK – KRONE

5.4190

DJIBOUTI – FRANC

177.0000

DOMINICAN REPUBLIC – PESO

42.6500

ECAUDOR – DOLARES

1.0000

EGYPT – POUND

6.9480

EL SALVADOR – DOLARES

1.0000

EQUATORIAL GUINEA – CFA FRANC

476.5400

ERITREA – NAKFA

15.0000

ESTONIA – EURO

0.7260

ETHIOPIA – BIRR

19.0600

EURO ZONE – EURO

0.7260

FIJI – DOLLAR

1.8640

FINLAND-EURO

0.7260

FRANCE-EURO

0.7260

GABON – CFA FRANC

476.5400

GAMBIA – DALASI

39.0000

GEORGIA – LARI

1.7400

GERMANY FRG – EURO

0.7260

GHANA – CEDI

2.3500

GREECE – EURO

0.7260

GRENADA – EAST CARIBBEAN DOLLAR

2.7000

GUATEMALA – QUENTZAL

7.8410

GUINEA – FRANC

7006.0000

GUINEA BISSAU – CFA FRANC

475.0000

GUYANA – DOLLAR

202.0000

HAITI – GOURDE

43.5500

HONDURAS – LEMPIRA

20.4200

HONG KONG – DOLLAR

7.7530

HUNGARY – FORINT

215.7300

ICELAND – KRONA

115.0300

INDIA – RUPEE

61.5000

INDONESIA – RUPIAH

12100.0000

IRAN – RIAL

8229.0000

IRAQ – DINAR

1166.0000

IRELAND-EURO

0.7260

ISRAEL-SHEKEL

3.4690

ITALY-EURO

0.7260

JAMAICA – DOLLAR

104.0000

JAPAN – YEN

105.0100

JERUSALEM-SHEKEL

3.4690

JORDAN – DINAR

0.7080

KAZAKHSTAN – TENGE

153.6000

KENYA – SHILLING

86.4000

KOREA – WON

1055.2500

KUWAIT – DINAR

0.2820

KYRGYZSTAN – SOM

49.4000

LAOS – KIP

8006.0000

LATVIA – LATS

0.5080

LEBANON – POUND

1500.0000

LESOTHO – SOUTH AFRICAN RAND

10.4800

LIBERIA – U.S. DOLLAR

79.0100

LIBYA-DINAR

1.2290

LITHUANIA – LITAS

2.5080

LUXEMBOURG-EURO

0.7260

MACAO – MOP

8.0000

MACEDONIA FYROM – DENAR

>43.4000

MADAGASCAR-ARIA

2236.0100

MALAWI – KWACHA

448.0000

MALAYSIA – RINGGIT

3.2770

MALI – CFA FRANC

475.0000

MALTA-EURO

0.7260

MARSHALLS ISLANDS – DOLLAR

1.0000

MARTINIQUE-EURO

0.7260

MAURITANIA – OUGUIYA

295.0000

MAURITIUS – RUPEE

29.9500

MEXICO – NEW PESO

13.0890

MICRONESIA – DOLLAR

1.0000

MOLDOVA – LEU

12.8950

MONGOLIA – TUGRIK

1654.1000

MONTENEGRO-EURO

0.7260

MOROCCO – DIRHAM

8.1470

MOZAMBIQUE – METICAL

29.8000

NAMIBIA – DOLLAR

10.4800

NEPAL – RUPEE

98.8000

NETHERLANDS – EURO

0.7260

NETHERLANDS ANTILLES – GUILDER

1.7800

NEW ZEALAND – DOLLAR

1.2160

NICARAGUA – CORDOBA

25.3300

NIGER – CFA FRANC

475.0000

NIGERIA – NAIRA

159.7000

NORWAY – KRONE

6.0830

OMAN – RIAL

0.3850

PAKISTAN – RUPEE

105.1600

PALAU-DOLLAR

1.0000

PANAMA – BALBOA

1.0000

PAPUA NEW GUINEA – KINA

2.3530

PARAGUAY – GUARANI

4585.4400

PERU – NUEVO SOL

2.7900

PHILIPPINES – PESO

44.3800

POLAND – ZLOTY

3.0140

PORTUGAL-EURO

0.7260

QATAR – RIYAL

3.6410

ROMANIA – LEU

3.2500

RUSSIA – RUBLE

32.8640

RWANDA – FRANC

665.6900

SAO TOME & PRINCIPE – DOBRAS

17736.4360

SAUDI ARABIA – RIYAL

3.7500

SENEGAL – CFA FRANC

475.0000

SERBIA-DINAR

83.1300

SEYCHELLES – RUPEE

11.9420

SIERRA LEONE – LEONE

4340.0000

SINGAPORE – DOLLAR

1.2630

SLOVAK REPUBLIC – EURO

0.7260

SLOVENIA – EURO

0.7260

SOLOMON ISLANDS – DOLLAR

7.0320

SOUTH AFRICA – RAND

10.4800

SOUTH SUDANESE – POUND

3.0000

SPAIN – EURO

0.7260

SRI LANKA – RUPEE

130.7500

ST LUCIA – EC DOLLAR

2.7000

SUDAN – SUDANESE POUND

6.1000

SURINAME – GUILDER

3.3500

SWAZILAND – LILANGENI

10.4800

SWEDEN – KRONA

6.4140

SWITZERLAND – FRANC

0.8910

SYRIA – POUND

141.3700

TAIWAN – DOLLAR

29.8150

TAJIKISTAN – SOMONI

4.7700

TANZANIA – SHILLING

1585.0000

THAILAND – BAHT

32.7400

TIMOR – LESTE DILI

1.0000

TOGO – CFA FRANC

475.0000

TONGA – PA’ANGA

1.7420

TRINIDAD & TOBAGO – DOLLAR

6.3800

TUNISIA – DINAR

1.6430

TURKEY – LIRA

2.1360

TURKMENISTAN – MANAT

2.8430

UGANDA – SHILLING

2520.0000

UKRAINE – HRYVNIA

8.2300

UNITED ARAB EMIRATES – DIRHAM

3.6730

UNITED KINGDOM – POUND STERLING

0.6050

URUGUAY – PESO

21.1000

UZBEKISTAN – SOM

2237.0000

VANUATU – VATU

95.3600

VENEZUELA – BOLIVAR

6.3000

VIETNAM – DONG

21100.0000

WESTERN SAMOA – TALA

2.2590

YEMEN – RIAL

214.5000

ZAMBIA – NEW KWACHA

5.5000

ZAMBIA – KWACHA

5455.0000

ZIMBABWE – DOLLAR

1.0000

 

FBARs and Polish Lokata Accounts

In recent years, I have received a number of questions from my Polish clients about whether “Lokata” accounts are reportable on the FBARs. The short answer is “Yes”.

Lokata Accounts

Lokata is a fixed-term deposit account which is very common in Polish banks; a Lokata is very similar to U.S. CD-type of accounts. There are many types of lokatas – overnight, three-month, six-month and even twelve-month lokatas. Usually, the bank would automatically take the funds from a current account (so-called “rachunek biezacy”) and deposit it on the lokata at a certain fixed percent. At the end of the lokata period, the lokata is closed by the bank and the balance with interest (minus automatic 19% tax withholding for non-business accounts) is returned to the current account.

All major Polish banks (e.g. DZ Bank and Bank Zchodni WBK S.A.) offer lokatas to their clients.

Lokata and FBAR Complications

Every time lokata is opened, it is assigned a separate account number. For the purposes of the FBAR, it is a bank account which should be reported on the FBAR separately from the current accounts (contrary to some of the widely-held beliefs among U.S. taxpayers living and working in Poland).

So far, this sounds fairly simple. However, there are serious complications with respect to reporting lokata accounts on the FBAR. First, most current bank account statements are not likely to fully identify lokata accounts.

Second, even where a lokata is identified by a separate number, you still need to make sure that the amount shown on the statements actually reflects the gross amount (i.e. before tax withholding). Usually, it would not and you will need to request the bank to supply a separate bank statement for each lokata and keep track of all gross interest and withholding tax amounts.

Third, the sheer number of lokata accounts can be overwhelming. While there are may be renewable long-term lokatas, oftentimes, it is the opposite. The problem with short-term lokatas is that they terminate once the funds with interest are returned to the current account. This means that a new lokata account is likely to be open every time a new deposit is made. Imagine if a new lokata is opened every week, every three days or every day?! This can be an extremely burdensome requirement for U.S. taxpayers who maintain bank accounts in Poland.

Other problems may arise where the taxpayer needs records for prior years, a lokata is opened in one year and is closed in the following year, et cetera.

Contact Sherayzen Law Office for Help with Reporting Undisclosed Lokata Accounts

If you have undisclosed bank and financial accounts in Poland, contact Sherayzen Law Office for help with your voluntary disclosure. Our team of experienced international tax professionals will thoroughly analyze your case, estimate your current potential FBAR liabilities, propose a solution to your FBAR problems, and implement your voluntary disclosure plan, including preparation of all required legal documents and tax forms.

New 2013 FBAR form: E-filing Explanation for Late FBARs

On October 1, 2013, in response to various requests from FBAR tax lawyers and accountants, FinCEN updated the online FBAR filing form. There are various new technical additions and a much friendlier user interface, but the inclusion of the explanation for the delay in FBAR filing is definitely the key new feature for the FBAR tax lawyers who are thinking about recommending the reasonable cause disclosure (a/k/a Modified Voluntary Disclosure) to their clients.

The late FBAR explanation has two particularly interesting characteristics.

Analysis of the Late Filing Explanation Choices

First, a taxpayer who files his FBAR late can choose among the following ten answers to explain the reason for filing the FBAR late:

A. Forgot to file
B. Did not know that I had to file
C. Thought account balance was below reporting threshold
D. Did not know that my account qualified as foreign
E. Account statement not received in time
F. Account statement lost (replacement requested)
G. Late receiving missing required account information
H. Unable to obtain joint spouse signature in time
I. Unable to access BSA E-Filing System
Z. Other

These choices are somewhat surprising for FBAR tax lawyers because some of these choices would not normally constitute a reasonable cause, others are repetitive and some may actually get the taxpayer (especially a taxpayer who is not represented by an FBAR tax lawyer).

The most dangerous answer is “A” – forgetting the FBAR means that the taxpayer admits to the knowledge of the existence of the FBAR requirement and non-willfully but negligently fails to comply with the FBAR requirement. Potentially, the IRS can use this answer to impose a $10,000 penalty per violation.

Choice “B” is a good but insufficient choice. Lack of knowledge of the FBAR may help establish non-willfulness, but it is not sufficient in itself for a reasonable cause. FBAR tax lawyers usually start with non-willfulness, but this is not where they end.

Choices “C” and, to a lesser extent, “F” may be dangerous because it is unclear where the confusion (in case of “C”) comes from and why the statements (in the case of “F”) were lost. The taxpayer could be opening the door to potential charge that he is not compliant with the FBAR recordkeeping requirements.

Outside of U.S. territories, I am not certain who would be using answer “D”. In any case, by itself, it does not appear to be sufficient to avoid the imposition of an FBAR penalty.

Choices “E” and “G” are pretty much the same and would be useful in presenting the argument for the reasonable cause, but this task can hardly accomplished without presenting a comprehensive context in which these events occurred. The same problem applies to “H” and “I”.

Choice “Z” – Other Explanation

The second and most important feature of the new FBAR is that it provides the space for writing an explanation for why the FBARs are filed late – this is the last choice “Z”.

There is, however, a very important limitation with respect to choice “Z”; there are only a maximum of 750 characters allowed. In other words, FinCEN and the IRS only gave taxpayers a few tweets to present a complex argument for non-willfulness and reasonable cause. Most FBAR tax lawyers will agree that 750 characters is a laughable amount of space for a reasonable cause explanation.

I believe that this feature will continue to be a great obstacle to submitting reasonable cause explanations purely electronically. More likely, the electronic explanation will need to reference the reasonable cause statement on paper.

Possibility of PDF File Upload in the Future

It seems that the IRS also understands that there is a big problem with choice Z. I fully expect the IRS to finish and implement a new feature (probably in the next version of the FBAR) that would allow FBAR tax lawyers to upload their reasonable cause statements as a pdf file (in a same manner as it is currently done in many court systems in the United States).

Contact Sherayzen Law Office for Legal Help With Late FBARs

If you have undisclosed foreign accounts and you are facing a situation where your FBARs will be filed late, contact Sherayzen Law Office for professional legal help with your late FBARs. Our experienced FBAR tax firm will thoroughly analyze your case, present the available choices, and properly conduct your voluntary disclosure, including the preparation and filing of late FBARs and other necessary legal documents and tax forms.

FBAR Penalties vs Offshore Voluntary Disclosure Program Penalties

There is a great confusion among international tax attorneys and Offshore Voluntary Disclosure Program (OVDP) applicants with respect to the OVDP Offshore Penalty and how it differs from the FBAR penalties. I already described in another article the OVDP penalties. In this article, I would like to compare and contrast some of the major features of the OVDP Offshore Penalty with the FBAR penalties.

FBAR Penalties

FBAR is one of the most unforgiving forms on the planet. The penalties associated with delinquent FBARs can be terrifying.

At the apex of the penalty structure are the criminal penalties that are imposed in association with a willful violation of the FBAR filing requirements under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. Section 1001. The criminal penalties may be up to 10 years in jail and $500,000 in fines.

Willful (i.e. where a person willfully fails to report an account or account identifying information) civil penalties equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. section 5321(a)(5). Note, that a penalty in this case applies to each violation which is defined as each undisclosed account per year.

Even where the violation is non-willful, a person may be subject to a civil penalty of $10,000 per violation. Again, note that this is a penalty per violation – i.e. per each unreported account per each year.

For the purposes of this article, it is also important to note that the penalties apply only to “foreign financial accounts”. This term is defined broadly to include various types of accounts which are not normally associated with the word “account” (for example: a precious metals storage or a life insurance policy with a cash-surrender value). Nevertheless, the FBAR penalty would not apply to real estate or a business interest; it would apply only to foreign financial accounts – i.e. the balances on the foreign financial accounts and the number of these accounts constitute the primary penalty base for the calculation of the FBAR penalties.

OVDP Offshore Penalties

In contrast to traditional FBAR penalties, OVDP Offshore Penalty may mean a completely different penalty range and penalty base.

Offshore Penalty Range

Unlike the FBAR penalties, OVDP Offshore Penalty is a limited penalty – i.e. there is a certain penalty that you have to pay by virtue of participating into the program. It is very important to understand that most individual circumstances, willfulness, non-willfulness and reasonable case have virtually no impact on the calculation of the Offshore Penalty.

There are three tiers of the OVDP Offshore Penalty. First, there is a 5% penalty tier. There are various possibilities how one would be entitled to such a favorable treatment; a detailed discussion of the 5% penalty possibilities is described elsewhere on sherayzenlaw.com.

Second, there is a 12.5% penalty tier. An OVDP applicant would be entitled to this penalty tier only if, during each of the years covered by the OVDP, the taxpayer’s penalty base (see below for detailed explanation of what “penalty base” means) is less than $75,000.

Finally, if neither 5% nor 12.5% penalty tiers apply, the default penalty of 27.5% of the penalty base will apply.

Penalty Base

As important as the penalty range, it pales in comparison to the determination of the OVDP Offshore Penalty base, because these calculations can be vastly different from the FBAR penalties.

First, the Offshore Penalty is imposed only once on the highest amount of the penalty base during the Voluntary Disclosure period (i.e. years covered by the OVDP which sometimes can be quite tricky to figure out).

Second, the base for the Offshore Penalty includes a wide variety of assets including foreign bank accounts, the fair market value of assets in undisclosed offshore entities, and the fair market value of any foreign assets that were either acquired with improperly untaxed funds or produced improperly untaxed income. The general rule is that the offshore penalty is intended to apply to all of the taxpayer’s offshore holdings that are related in any way to tax non-compliance, regardless of the form of the taxpayer’s ownership or the character of the asset.

This means that the Offshore Penalty may include such assets as business ownership interests, stocks, artwork, automobiles, patents, trademarks, and (very important) real estate. Even ownership of U.S. businesses acquired with tainted funds may be open to the Offshore Penalty.

In other words, the penalty base of the OVDP Offshore Penalty may include a much greater variety of assets in addition to the assets already covered by the FBAR.

Penalty Differences Between FBARs and OVDP Should Influence Your Voluntary Disclosure Options

Given the tremendous differences in the range of penalties and the calculation of the penalty base, it is highly important (and I cannot stress this point enough) to properly analyze the potential tax liabilities under both methods before making the decision on whether to enter the OVDP or pursue a reasonable cause (so-called “noisy” or “modified”) voluntary disclosure. It is highly important that the client understands the differences in the calculations and the potential risks of pursuing either option.

Contact Sherayzen Law Office for Professional Help With the Disclosure of Your Foreign Financial Accounts

If you have undisclosed foreign financial accounts or other offshore assets, contact Sherayzen Law Office for legal help. Our experienced international tax law firm will thoroughly analyze your case, calculate your potential tax liabilities, present you with a range of options, and implement your voluntary disclosure plan (including preparation of all tax forms and legal documents).