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FinCEN Form 114 Indian Financial Accounts Obligations | FBAR Attorney

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FinCEN Form 114, the Report of Foreign Bank and Financial Accounts, commonly known as  “FBAR”, is one of the most important requirements that Indian Americans face as part of their US tax compliance concerning their Indian Financial Accounts. This articles provides an overview of the  Indian American’s FBAR compliance requirements with the particular focus on the FinCEN Form 114 Indian Financial Accounts obligations.

FinCEN Form 114 Indian Financial Accounts: FBAR Background Information

FinCEN Form 114 is a critical requirement for any US person with financial accounts outside the United States. US citizens, residents, and even certain non-residents who have a financial interest or signature authority over foreign financial accounts must file an FBAR if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

FBAR was introduced in the early 1970s as part of the Bank Secrecy Act.  Its original purpose was to combat money laundering, tax evasion, and other illicit activities involving undisclosed foreign financial assets. After the 9/11 terrorist attacks, however, Congress turned over the FBAR enforcement to the IRS, effectively turning FBAR into a tax form and one of the most formidable enforcement tools in the IRS arsenal.

What makes FinCEN Form 114 such a great US international tax enforcement weapon is the combination its broad scope of compliance, its low reporting threshold and, most importantly, its draconian noncompliance penalties.  FBAR penalties range from criminal penalties (i.e. a person can actually go to jail for FBAR noncompliance in certain limited circumstances) to horrendous civil willful penalties (imposed on a per account per year basis) to even non-willful penalties.  

While the Supreme court limited in 2023 the non-willful penalties to $10,000 (as adjusted for inflation) per form, FBAR has a statute of limitations of six years. This means that a non-willfulness penalty assessed after January 25, 2024 (until sometime at the end of the January of 2025) can still total $96,702 (inflation is accounted for in this number through the end of 2024).

FinCEN Form 114 Indian Financial Accounts: FBAR’s Broad Definition of “Account”

I mentioned above that the broad scope of FBAR compliance is one of the form’s characteristics that makes it so dangerous. The foundation for the far reach of the form stems from the FBAR’s broad definition of what constitutes a reportable “account” “Account” can be applied a huge variety of financial arrangements including but not limited to:

  • Bank accounts (such as savings and checking accounts)
  • Fixed-deposit accounts (each one individually is a separate account)
  • Mutual funds
  • Pension accounts (including the Indian PPF accounts)
  • Insurance policies with a cash-surrender value
  • Precious metal accounts
  • Retirement accounts

Basically, any type of a arrangement that involves a fiduciary relationship with a financial institution (which is itself a term of art with a broad definition) with respect to your assets immediately raises a possibility of additional FinCEN Form 114 compliance.  

It is crucial to note that the FBAR filing requirement applies not only to accounts where a US person is the sole owner but also to accounts where they have joint ownership or signature authority. Even accounts where a person only has signing authority, such as an employer’s account, are subject to the FinCEN Form 114 reporting requirement if the $10,000 threshold is met.

FinCEN Form 114 Indian Financial Accounts: Special Challenges in the Context of India

In the specific context of Indian Financial Accounts, such a broad definition of accounts for FinCEN Form 114 purposes leads to unique compliance challenges. Let’s discuss the three most common challenges. First of all, Indian FBAR filers tend to have a very large number of fixed-deposit and Indian mutual fund accounts as long-term savings financial vehicles. Many Indians think that they only have to report only main checking and savings bank accounts.  This is an important error. FBAR filers need to disclose each fixed-deposit and mutual fund account individually.

Second, Indian FinCEN Form 114 filers generally do not think of life insurance policies as something that they need to disclose.  Yet, the FBAR requires the disclosure of each life insurance policy individually.

Third, FBAR filers must disclose Public Provident Fund (“PPF”) accounts on their FBARs.  Many Indian Americans completely forget about these accounts.

I should also mention one more important point about these unique challenges – income tax compliance concerning all of these accounts that many Indian FBAR filers tend to overlook. India has a very different system of taxation from the United States and, usually, a failure to disclose accounts properly on FBAR is also a good indicator of potential US income tax noncompliance.

FinCEN Form 114 Indian Financial Accounts: Offshore Voluntary Disclosure

Now that we have identified the problem, let’s discuss how to best deal with FinCEN Form 114 noncompliance.  First of all, this is an issue that you should discuss with an international tax attorney who can advise on the best course of action based on the specific facts of your case.

One of the common advices that you will receive from your international tax attorney is to engage in an Offshore Voluntary Disclosure option. Offshore Voluntary Disclosure is a reflection of the fact that the IRS cannot possibly audit every single US income tax return. Hence, the IRS offers various offshore voluntary disclosure programs that allow noncompliant US taxpayers to come forward and report their unreported foreign financial accounts and other foreign assets in exchange for a more lenient treatment.

An offshore voluntary disclosure can be a highly-beneficial solution for prior noncompliance. At the same time, it is a highly-complex process that requires extensive knowledge of US tax laws.

Moreover, in the context of FinCEN Form 114 Indian Financial Accounts noncompliance, there are specific challenges that arise from the income tax treatment concerning Indian fixed-deposit accounts as well as Indian mutual fund investments (something that I alluded to above).

In these situations, working with an experienced international tax attorney who understands the intricacies of US tax reporting of Indian financial accounts is crucial. An attorney can help you navigate the voluntary disclosure process and minimize your exposure to penalties.

Contact Sherayzen Law Office for Professional Help with Your FinCEN Form 114 Indian Financial Accounts Compliance

Sherayzen Law Office is a premier US international tax law firm that specializes in FBAR compliance and offshore voluntary disclosures. We have an extensive experience with US tax reporting concerning Indian bank and financial accounts, including in the context of various offshore voluntary disclosure options such as Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures, Delinquent FBAR Submission Procedures, Delinquent International Information Return Submission Procedures, Reasonable Cause disclosures, et cetera. By working with Sherayzen Law Office, you ensure that your compliance with US tax laws is handled thoroughly and professionally with the goal of protecting you from potential penalties.

Contact Sherayzen Law Office today to schedule your confidential consultation!

FBAR Maximum Account Value Determination | FBAR Tax Lawyer & Attorney

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Determination of the FBAR maximum account value is a problem with which every FBAR filer has to deal. In this article, I would like to provide the main guidelines for the determination of the FBAR maximum account value.

FBAR Maximum Account Value Determination: Background Information

The Report of Foreign Bank and Financial Accounts or FBAR requires each filer to disclose his financial interest in or signatory authority or any other authority over foreign bank and financial accounts to the IRS. As part of this disclosure, the filer must calculate and report the maximum account value for each of his foreign accounts on his FBAR.

FBAR Maximum Account Value Determination: Definition of Highest Value

FinCEN defines the maximum value of an account for FBAR purposes as “a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year.” In other words, the IRS does not expect you to always get the highest possible value. A reasonable approximation of this value will do if the exact highest value is not possible to determine.

FBAR Maximum Account Value Determination: Usual Problems

There are two main problems that each FBAR filer faces whenever he tries to identify the maximum account value for FBAR purposes. The first and most obvious problem is the determination of the highest account value. How does one determine the highest value for a bank account? What about a securities account where stocks fluctuate all the time? What about a precious metals account which has investments in different precious metals?

Second, FBAR requires that all amounts be stated in US dollars. Hence, an issue arises with respect to proper currency conversion – i.e. what is the proper currency exchange rate? Should the spot rates be used? Or December 31 exchange rates?

Let’s discuss each of these problems in more depth.

FBAR Maximum Account Value Determination: Methodology

Determination of maximum account value depends to a certain degree on the type of an account for which the filer is trying to determine this value. There is no question that, with respect to checking and savings bank accounts, the IRS wants you to use the full-year statements to determine the day on which the highest value was achieved for each of these accounts. This is a simple and effective method.

Determining the maximum value of a securities account is much harder, because securities fluctuate on a daily basis. For this reason, the IRS allows you to rely on periodic account statements to make this determination, especially end-of-year statements. This method is allowed only as long as the statements fairly approximate the maximum value during the calendar year.

Even this method, however, is often insufficient when one deals with mixed-currency accounts, mixed-investment accounts, mixed-metal accounts, et cetera. These situations should be handled on a case-by-case basis by your international tax attorney.

Let’s illustrate the complexity of the issues involved here by a relatively simple example. Generally, an end-of-year statement for an investment account is a good approximation of the maximum value of the account. If, however, there was a withdrawal of funds from the account following a major sale of investments, then the end-of-year statement cannot be relied upon. Instead, one should try a different method to approximate the highest value. One possibility is to use a reliable and known financial website for valuing the remaining assets on the date of the sale plus the proceeds from the sale of investments. The method, however, may fail if the highest value of investments was at the beginning of the year, not the date of sale.

FBAR Maximum Account Value Determination: Currency Conversion

Unlike the identification of the highest account value with its various complications, the currency conversation part of the FBAR maximum account value determination is fairly straightforward. All filers must use the end-of-year FBAR rates published by the Treasury Department. These rates are officially called “Treasury Financial Management Service rates”, but they are commonly called “FBAR rates” by US international tax lawyers. The FBAR rates are division rates, not the multiplication ones. This is standard in US international tax law.

Hence, for the currency conversion purposes, you need to identify the currency in which your account is nominated, find the appropriate FBAR conversion rate for the relevant year and divide your highest balance by the relevant FBAR rate. For your convenience, Sherayzen Law Office also publishes FBAR rates on its website.

Contact Sherayzen Law Office for Professional Help With Your FBAR Preparation

If you are required to file FBARs, contact Sherayzen Law Office for professional help. We have helped hundreds of US taxpayers to comply with their FBAR obligations, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2018 FinCEN Form 114 Deadline | FBAR International Tax Lawyer & Attorney

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The 2018 FinCEN Form 114 deadline is approaching fast. It is definitely one of the most important deadlines that US taxpayers face in 2019. It is also one of the most confusing ones, because this form is not filed with a federal income tax return. Moreover, some taxpayers mistakenly treat 2018 FinCEN Form 114 as something separate from the 2018 FBAR. In order to clarify these issues, Sherayzen Law Office is publishing this notice on the 2018 FinCEN Form 114 deadline to US taxpayers.

2018 FinCEN Form 114 Deadline: Relationship Between FBAR and FinCEN Form 114

FBAR is an acronym for FinCEN Form 114, the Report of Foreign Bank and Financial Accounts. In other words, these are two names of the same form. Also, it is useful to know that, prior to mandatory e-filing, the official name of FBAR was TD F 90-22.1 and it was filed on paper. The name of the form changed once the e-filing form was created.

2018 FinCEN Form 114 Deadline: Pre-2016 Deadline

For the years preceding 2016, the US government chose a very strange deadline for FBARs – June 30 of each year. For example, the 2012 FBAR was due on June 30, 2013. No filing extensions were allowed.

The last FinCEN Form 114 that followed the June 30 deadline was the 2015 FinCEN Form 114; its due date was June 30, 2016. This fact is still relevant for offshore voluntary disclosures and FinCEN Form 114 audits due to the six-year FBAR statute of limitations. The June 30 deadline will continue to be relevant as late as June 30, 2022.

2018 FinCEN Form 114 Deadline: Changes Starting 2016 FinCEN Form 114

In order to resolve the problem of confusing deadlines, the US Congress changed the FinCEN Form 114 deadline as part of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the “Act”). Under Section 2006(b)(11) of the Act, starting 2016 FinCEN Form 114, US Persons must e-file FBARs by the due date of that year’s tax return (i.e. usually April 15), not June 30.

Furthermore, during the transition period (which continues to this date), the IRS granted to US taxpayers an automatic extension of the FinCEN Form 114 filing deadline to October 15. Taxpayers do not need to make any specific requests in order for an extension to be granted.

In other words, starting 2016 FinCEN Form 114, the Act adjusted the FinCEN Form 114 due date to coincide with the federal income tax filing deadlines. This is the case even if federal law requires a different filing date. For example, in situations where the tax return due date falls on a Saturday, Sunday, or legal holiday, the IRS must delay the due date until the next business day; the FBAR deadline will follow suit and also shift to the next business day.

2018 FinCEN Form 114 Deadline

Based on the current law, the 2018 FinCEN Form 114 deadline will be April 15, 2019. In other words, your 2018 FinCEN Form 114 has to be e-filed by and including that date. Automatic extension to October 15, 2019, is available.

2018 FinCEN Form 114 Deadline: Who Must File by April 15, 2019

A US Person must file his 2018 FinCEN Form 114 by April 15, 2019, as long as his foreign bank and financial accounts meet the FinCEN Form 114 filing requirements.

“US Person” has special significance in the context of FinCEN Form 114. This term is very similar to the concept of “US tax resident”, but there are some differences between these terms. In general, a US Person includes a US citizen, a US permanent resident and any person who satisfies the Substantial Presence Test. The term also covers any business entity, trust and estate formed under the laws of the United States.

Moreover, “US Person” also applies to certain non-resident aliens who make first-year election under IRC §7701(b)(4). This term, however, does not apply to persons who make the first-year election pursuant to IRC §6013(g) or (h) election. See this article for a more detailed discussion of individual FinCEN Form 114 filers.

2018 FinCEN Form 114 Deadline: the Trigger for the FinCEN Form 114 Requirement

The FinCEN Form 114 requirement is triggered whenever a US person has a financial interest in or signatory authority or any other authority over foreign bank and financial accounts the highest aggregate value of which exceed $10,000. The term “accounts” is defined very broadly to include pretty much any custodial relationship. For example, this terms includes: foreign bank accounts, foreign fixed-deposit accounts, foreign investment accounts, foreign mutual funds, foreign precious metals accounts, foreign life insurance policies, foreign retirement accounts and so on and so forth.

A PPF account in India is a reportable foreign account for FinCEN Form 114. The French Assurance Vie accounts, Malaysian health insurance investment accounts, Australian Superannuation Fund accounts, Colombian building contract accounts, Argentinian “participation” accounts, German “building” accounts, Spanish mutual fund accounts, Swiss financial products are all reportable bank and financial accounts for FinCEN Form 114 purposes; so are Goldmoney and BullionVault accounts.

Contact Sherayzen Law Office for Professional Help With Your 2018 FinCEN Form 114 Deadline

Sherayzen Law Office is an international tax law firm that specializes in FinCEN Form 114 compliance. We have filed thousands of FBARs for our clients as part of their annual tax compliance as well as offshore voluntary disclosures. We can help You!

Contact Us Today to Schedule Your Confidential Initial Consultation!

FinCEN Form 114 Business Filers | FBAR Lawyer & Attorney Delaware

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In a previous article, I described individuals who need to file FinCEN Form 114. This essay is a continuation of the same series of articles concerning FinCEN Form 114 filers. Today, I will devote my attention to FinCEN Form 114 Business Filers.

FinCEN Form 114 Business Filers: FBAR Filing Requirement

We first need to understand what Form 114 is. The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 also known as “FBAR”, is one of the most important information returns administered by the IRS since 2001 (the form itself has existed since 1970). FBAR requires a US person to disclose his financial interest in or signatory authority (or any other authority) over foreign bank and financial accounts as long as the highest balance of these accounts, in the aggregate, exceeds $10,000 at any point during a calendar year.

FBAR is the creation of the Bank Secrecy Act, Title 31 of the United States Code (“USC”). In other words, it is technically not a tax form. In fact, its original purpose was to fight financial crimes.

Due to this legal history, FBAR has a ruthless yet highly elaborate penalty system. FBAR penalties range from criminal penalties that include incarceration to the astonishingly high willful and even non-willful civil penalties. This severe penalty system makes FBAR one of the most dangerous US international information returns.

FinCEN Form 114 Business Filers: General Definition

As described above, only US persons are required to file FBARs. There are various categories of US persons: individuals, businesses, trusts and estates. Our focus today is on business filers.

The general rule is that a business entity is considered a US person if it was created or organized in the United States or under the laws of the United States. There are two terms that we need to understand within this general rule in order to the rule apply correctly: entity and the United States.

FinCEN Form 114 Business Filers: Entity

For FBAR purposes, the word “entity” is defined broadly to include without limitation a corporation, a partnership and a limited liability company. This term applies even if a business is a disregarded entity for US tax purposes.

In other words, a single member limited liability company is required to file an FBAR if it has foreign accounts that satisfy the FBAR filing threshold. Again, the reason for applying the legal, rather than a tax a definition of “entity”, is driven by the FBAR’s legal history; it is a Title 31 requirement, not a Title 26 (i.e. the Internal Revenue Code) requirement.

FinCEN Form 114 Business Filers: Definition of the United States

I have already explored the FBAR definition of the United States in another article. Hence, I will only briefly state the rule here. 31 CFR 1010.100(hhh) defines the United States for FBAR purposes as: the States of the United States, the District of Columbia, the Indian Lands (as defined in the Indian Gaming Regulatory Act) and the territories and insular possessions of the United States.

Thus, a business entity formed in Guam is considered a US person for FBAR purposes. Similarly, a partnership formed in Delaware by two non-resident aliens is also a US person. Even an entity created under the laws of the Commonwealth of Puerto Rico will still be a US person. If these entities have foreign financial and bank accounts which exceed the FBAR filing threshold, they will also be considered FinCEN Form 114 business filers.

Contact Sherayzen Law Office for Professional FBAR Help

If you are a US business entity which maintains foreign accounts outside of the United States, please consider contacting Sherayzen Law Office for professional legal help. We have extensive experience in helping US businesses to comply with their FBAR requirements as well as to remedy their past FBAR noncompliance through an offshore voluntary disclosure.

Contact Us Today to Schedule Your Confidential Consultation!

This article focuses on FinCEN Form 114 business filers and is part of the series of articles on FinCEN Form 114 filers. The series began with the article that FBAR and Form 114a are the same form, then another article on the FBAR definition of the United States and still another article on the FinCEN Form 114 Filers (with the focus on the individual filers). Future articles are planned to continue this series.

FinCEN Form 114 Filers | FBAR Tax Lawyer & Attorney Minnesota Minneapolis

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The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (a/k/a FBAR) is arguably the most important information return concerning foreign accounts. Its importance stems first and foremost from the extremely severe Form 114 penalties, which range from criminal penalties of up to 10 years in prison to willful and even non-willful penalties that may exceed the value of the penalized accounts. Given these penalties, it is important to understand who FinCEN Form 114 filers are – i.e. who is required to file Form 114?

For today’s purposes, I will concentrate only on the individual FinCEN Form 114 filers.

FinCEN Form 114 Filers: General Definition

At the center of the definition of FBAR filer is a United States person (“US person”). A US person must file FinCEN Form 114 if he has a financial interest in or signatory authority or any other authority over any foreign financial accounts and the aggregate maximum value of these accounts exceeds $10,000 at any time during the calendar year.

FinCEN Form 114 Filers: Main Categories of US Persons

Under the 31 CFR 1010.350(b), the definition of a US Person is very specific and consists of five main categories: (1) a citizen of the United States; (2) a resident of the United States; (3) an entity created or organized in the United States or under the laws of the United States; (4) a trust formed under the laws of the United States; and (5) an estate formed under the laws of the United States. As I stated above, today, I will focus only on categories 1 and 2; I will deal with business, trust and estate FinCEN Form 114 filers in other articles.

FinCEN Form 114 Filers: US Citizens

This is by far the easiest category of FinCEN Form 114 filers to analyze. If an individual is a US citizen and has foreign accounts that exceed the filing threshold, then, he must file Form 114.

FinCEN Form 114 Filers: Definition of “Residents of the United States”

In the context of FBAR compliance, a “resident of the United States” has a special meaning which corresponds for the most part, but not exactly, to the US income tax definition of a tax resident. There are three distinct categories of individuals who fall within the definition of a “resident of the United States” for FBAR purposes: US permanent residents, persons who satisfy the Substantial Presence Test, and certain non-resident aliens who make the first-year election to be treated as US tax residents. Additionally, Internal Revenue Code (“IRC”) §7701(b)(2) contains a number of provisions that regulate when individuals are considered to be US residents for FBAR (as well as income tax) purposes during the first-year and the last-year of residency.

FinCEN Form 114 Filers: US Permanent Residents

The first category of residents of the United States is not complex. All US Permanent are US persons and, if they have foreign accounts that exceed the FBAR filing threshold, also FinCEN Form 114 filers.

FinCEN Form 114 Filers: Substantial Presence Test

The second category of residents of the United States for FBAR purposes are the individuals who satisfied the Substantial Presence Test described in IRC §7701(b)(3). Under the Substantial Presence Test, an individual is a US person if: (1) he was present in the United States (as defined under 31 CFR 1010.100(hhh)) for at least 31 days during the calendar year in question; and (2) the sum of the number of days on which such individual was present in the United States during the current year and the two preceding calendar years equals or exceeds 183 days. The amount of days in the two preceding years should multiplied by the applicable multiplier as follows: first preceding year – one-third; second preceding year – one-sixth.

For example, if we are trying to determine the tax residency for the tax year 2019, we will take all the sum of the days an individual was physically present in the United States in 2019, one-third of the days in 2018 and one-sixth of the days in 2017. If the total amount equals or exceeds 183 days, then this individual is a US person for FBAR purposes.

It should be pointed out that this is the general rule. There are numerous exceptions to the Substantial Present Test, including the famous “closer connection exception” and certain visa exemptions. Hence, you should retain an international tax attorney to analyze your specific set of facts in order to determine whether you should be considered a US person for FBAR purposes.

FinCEN Form 114 Filers: First-Year Residency Election

The third category of residents of the United States for FBAR purposes includes all individuals who made a first-year election on their US tax returns to be treated as residents pursuant to IRC §7701(b)(4). Generally, we are talking about a situation where a person does not have a green card, does not meet the Substantial Presence Test and comes sometime during a year. In other words, this person is not a US person under any other category, but decides to make an election to be treated as a US tax resident.

In order to make this election, the person must satisfy certain requirements outlined in IRC §7701(b)(4). Failure to meet any of these requirements will result in a person becoming a non-resident alien for the entire year.

It is also important not to confuse the IRC §7701(b)(4) election with the IRC §6013(g) or (h) election. In the latter cases, the elections do not affect the residency status for FBAR purposes.

FinCEN Form 114 Filers: First- and Last-Year Residency Provisions of IRC §7701(b)(2)

IRC §7701(b)(2) is not technically a fourth category of a resident of the United States. Rather, this section regulates when US residency actually starts or ends once it is acquired or lost under other categories. Nevertheless, it is important to understand and be aware of these provisions.

FinCEN Form 114 Filers: Tax Treaties & FBAR Residency Status

Most tax treaties contain what are known as “tie-breaker provisions” for determining a person’s tax residency. Sometimes, a person can use these provisions to escape the income tax residency rules. The IRS has specifically stated that, as long as one of the residency test of IRC §7701(b) is met, the tax treaty non-residency determination does not affect the residency status of a person for FBAR purposes.

Contact Sherayzen Law Office for the Determination of Whether You and Your Family Should Be Considered FinCEN Form 114 Filers

If you have foreign bank accounts, contact Sherayzen Law Office for professional help concerning whether you need to file an FBAR. Sherayzen Law Office is a highly-experienced international tax law firm which has helped hundreds of US taxpayers with their FBAR issues. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!