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October 31 2020 FBAR Deadline | FBAR Tax Lawyer & Attorney

US taxpayers can still timely file their 2019 FBAR (Report of Foreign Bank and Financial Accounts) by the new October 31 2020 FBAR deadline. This FBAR deadline extension is highly unusual and requires some explanation.

October 31 2020 FBAR Deadline: What is FBAR?

The Report of Foreign Bank and Financial Accounts (“FBAR”) is officially known as FinCen Form 114. This form must be filed by US persons with an ownership interest in or signatory authority or any other authority over foreign bank and financial accounts if the aggregate value of such accounts exceeds $10,000 at any point during a calendar year. This is a very important US international information return; a failure to timely and correctly file an FBAR may result in an imposition of draconian FBAR penalties. This is why it is so important to learn about FBAR deadlines.

October 31 2020 FBAR Deadline & FinCEN Mistake

The 2019 FBAR deadline extension became possible as a result of an incorrect message posted by FinCEN on its BSA (Bank Secrecy Act) website. On October 14, 2020, FinCEN posted a message that incorrectly stated that the 2019 FBAR deadline was extended to December 31, 2020 for all FBAR filers. Within twenty-four hours, FinCEN removed the message.

On October 16, 2020, FinCEN posted a corrected message that stated that the extension to December 31, 2020, was intended only for victims of recent natural disasters listed in FinCEN’s October 6, 2020 notice.

Since, however, there were filers who have missed the October 15 deadline due to the incorrect October 14 message, FinCEN decided to allow these filers to have an extra couple of weeks to file their 2019 FBARs. For this reason, FinCEN established a new October 31 2020 FBAR deadline for all FBAR filers (except those who were victims of natural disasters listed in the aforementioned October 6 list).

October 31 2020 FBAR Deadline & December 31 2020 FBAR Deadline

Thus, there are two separate FBAR filing deadline extensions still outstanding. The first one is the October 31 2020 FBAR deadline which applies to all FBAR filers except the ones who are also eligible for the second deadline extension.

The second deadline extension to December 31, 2020 applies only to victims of natural disasters listed in FinCEN’s October 6, 2020 notice.

Contact Sherayzen Law Office for Professional Help with FBAR Compliance

Sherayzen Law Office is a leading US international tax law firm that specializes in US international tax law and FBAR compliance. We have filed thousands of FBARs for our clients. We have also helped US taxpayers from over 70 countries to deal with FBAR filing violations for prior years, including as part of a voluntary disclosure (such as Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent FBAR Submission Procedures and Reasonable Cause disclosures). Our FBAR clients include individuals, corporations, partnerships, estates, trusts and disregarded entities.

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Hungarian Bank Accounts | US International Tax Lawyer & Attorney

US taxpayers who own Hungarian bank accounts may have to comply with a large number of US tax reporting requirements. In particular, they need to be concerned about reporting income generated by their Hungarian bank accounts as well as disclosing the ownership of these accounts on FBAR and Form 8938. Other requirements may apply, but these are the three main ones. Let’s explore them in more detail in this essay.

Hungarian Bank Accounts: Definition of “Filer”

It is important to understand that each of the aforementioned three requirements has its own definition of “filer” – a person who is subject to these obligations to report his foreign assets and foreign income. These differences in the definition of filer, however, are fairly small. Rather, every definition is essentially based on the concept of “US tax residency”. In fact, the worldwide income reporting requirement applies only to US tax residents.

Who are “US tax residents”? This definition encompasses the following persons: US citizens, US permanent residents, persons who satisfy the Substantial Presence Test and persons who declare themselves as US tax residents. Keep in mind that this is a general definition of US tax residents which is subject to a number of important exceptions.

So, if US tax residency definition forms the basis for all three requirements, what are the differences? Generally, the differences arise with respect to situations which are less common and mostly limited to the persons who try to declare themselves as US tax residents or non-resident aliens. The most common issues arise with respect to the application of the Substantial Presence Test, first-year definition of US tax resident and last-year definition of a US tax resident. A common example can be found with respect to treaty “tie-breaker” provisions, which foreign persons use to escape the effects of the Substantial Presence Test for US tax residency purposes.

The determination of your US tax reporting requirements is the primary task of your international tax attorney. It is simply too dangerous for a common taxpayer or even an accountant to attempt to dabble in this area of US international tax law.

Hungarian Bank Accounts: Worldwide Income Reporting Requirement

Now that we understand the concept of US tax residency, we are ready to explore the aforementioned three US reporting requirements with respect to Hungarian bank accounts. Let’s begin with the obligation to report income generated by Hungarian bank accounts.

All US tax residents, as defined above, must disclose their worldwide income on their US tax returns. This means that they must report to the IRS their US-source and foreign-source income. The worldwide income reporting requirement applies to all types of foreign-source income: bank interest income, dividends, royalties, capital gains and any other income.

The worldwide income reporting requirement applies even if the foreign income is subject to Hungarian tax withholding or reported on a Hungarian tax return. It also does not matter whether the income was ever transferred to the United States or stayed in Hungary – the worldwide income reporting requirement will still apply in either case.

Hungarian Bank Accounts: FBAR (FinCEN Form 114)

In addition to reporting the income generated by Hungarian bank accounts, a taxpayer may also need to disclose the ownership of these accounts on his Report of Foreign Bank and Financial Accounts (abbreviated as “FBAR”). The official name of FBAR is FinCEN Form 114.

FBAR is arguably the most important reporting requirement with respect to foreign accounts. The irony is that it is not a tax form – i.e. it is not part of the Internal Revenue Code which is Title 26 of the United States Code. Rather, FBAR was created by the Bank Secrecy Act of 1970 under Title 31 of the United States Code.

Basically, the US Department of the Treasury requires all “US Persons” to disclose their ownership interest in or signatory authority or any other authority over Hungarian (and any other foreign country) bank and financial accounts if the aggregate highest balance of these accounts exceeds $10,000. If these requirements are met, the disclosure requirement is satisfied by filing an FBAR.

It is important to understand that all parts of this FBAR requirement are terms and conditions that require further exploration and understanding. I encourage you to search our firm’s website, sherayzenlaw.com, for the definition of “US Persons” and the explanation of other parts of the FBAR requirement.

There is one part of the FBAR requirement, however, that I wish to explore here in more detail – the definition of “account”. The reason for this special treatment is the fact that this definition is a very important source of confusion among US taxpayers with respect to what needs to be disclosed on FBAR.

The FBAR definition of an account is substantially broader than what this word generally means in our society. “Account” for FBAR purposes includes: checking accounts, savings accounts, fixed-deposit accounts, investments accounts, mutual funds, options/commodity futures accounts, life insurance policies with a cash surrender value, precious metals accounts, earth mineral accounts, et cetera. In fact, whenever there is a custodial relationship between a foreign financial institution and a US person’s foreign asset, there is a very high probability that the IRS will find that an account exists for FBAR purposes.

Despite the fact that FBAR compliance is neither easy nor straightforward, FBAR has a very severe penalty system. On the criminal side, FBAR noncompliance may lead to as many as ten years in jail (of course, these penalties come into effect in extreme situations). On the civil side, the most dreaded penalties are FBAR willful civil penalties which can easily exceed a person’s net worth. Even FBAR non-willful penalties can wreak a havoc in a person’s financial life.

Civil FBAR penalties have their own complex web of penalty mitigation layers, which depend on the facts and circumstances of one’s case. In 2015, the IRS added another layer of limitations on the FBAR penalty imposition. One must remember, however, that these are voluntary IRS actions which the IRS may disregard whenever circumstances warrant such an action.

Hungarian Bank Accounts: FATCA Form 8938

Finally, the third requirement that I wish to discuss today is a relative newcomer, FATCA Form 8938. This form requires “Specified Persons” to disclose all of their Specified Foreign Financial Assets (“SFFA”) as long as these Specified Persons meet the applicable filing threshold. The filing threshold depends on the Specified Person’s tax return filing status and his physical residency.

The IRS defines SFFA very broadly to include an enormous variety of financial instruments, including foreign bank accounts, foreign business ownership, foreign trust beneficiary interests, bond certificates, various types of swaps, et cetera. In some ways, FBAR and Form 8938 require the reporting of the same assets, but these two forms are completely independent from each other. This means that a taxpayer may have to report same foreign assets on FBAR and Form 8938.

Specified Persons consist of two categories of filers: Specified Individuals and Specified Domestic Entities. You can find a detailed explanation of both categories by searching our website sherayzenlaw.com.

Finally, Form 8938 has its own penalty system which has far-reaching income tax consequences (including disallowance of foreign tax credit and imposition of 40% accuracy-related income tax penalties). There is also a $10,000 failure-to-file penalty.

One must also remember that, unlike FBAR, Form 8938 is filed with the filer’s federal tax return and forms part of the tax return. This means that a failure to file Form 8938 may render the entire tax return incomplete and potentially subject to an IRS audit.

Contact Sherayzen Law Office for Professional Help With the US Tax Reporting of Your Hungarian Bank Accounts

If you have Hungarian bank accounts, you should contact Sherayzen Law Office for professional help with your US international tax compliance. We have helped hundreds of US taxpayers with their US international tax issues (including disclosure of Hungarian bank accounts), and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!