When in Doubt, Fill it Out

Some of the most draconian financial penalties levied by the U.S. Treasury are associated with the Foreign Bank and Financial Accounts Report (“FBAR”). This report is made on FinCEN Form 114 by U.S. persons having a financial interest in or signature authority over foreign financial accounts, if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. Through the year 2015, FBARs were required to be filed by June 30 of the next year, with no possible extensions of time. For returns for tax years beginning after December 31, 2015, the due date for the FBAR will be April 15 of the next year, with a maximum extension for a six-month period ending October 15.

The rules concerning FBAR reporting are complex and confusing. They are made even more confusing by the fact that there is a similar reporting requirement enacted in 2010 by the Foreign Account Tax Compliance Act (“FATCA”) with respect to “specified foreign financial assets” and reported on Form 8938, which is filed with a taxpayer’s income tax return. While similar, the two requirements have marked differences. Some accounts are reported on both forms. Some accounts are reported on Form 8938, but not on the FBAR. Some accounts are reported on the FBAR, but not Form 8938. Sometimes only one of the two forms must be filed. Also, the reporting on Form 8938 continues to evolve.

Did I mention that the rules are confusing? The Ninth Circuit Court of Appeals issued an opinion this week that illustrates the problem. Mr. John C. Hom appealed a Federal District Court’s decision that three accounts that he used to play online poker were financial accounts reportable on the FBAR. Under the regulations in effect at the time under consideration, the key questions in the case were whether the accounts were “bank, securities, or other financial account(s)” and whether those accounts were “in a foreign country.” The Court of Appeals held that one of the accounts (his “FirePay” account) was like a bank account and that the two other accounts primarily were used and could only be used to play poker and, thus, were not financial accounts. The Ninth Circuit said that the online FirePay account was a foreign account because FirePay is located in and regulated by the United Kingdom.

I’ve given a lot of advice about filing of FBARs and Forms 8938 and have spoken on the topic at a tax conference. One can render my voluminous expositions about filing the forms into simply this: when in doubt, fill it out.

VKM