Eliminate: #FBAR

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Report of Foreign Bank and Financial Accounts (FBAR)

Form’s new name: Financial Crimes Enforcement Network (FinCEN) 114. As of 2013, the form must be filed electronically at FinCen and special permission is required to file by paper.

Previous name: TD F 90-22.1

Summary:

Immediate legislative and litigative actions are needed to stop immoral and unconstitutional FBAR and IRS form 8938. US persons with a life outside of USA are NOT criminals and should not be assumed so.

History:

US citizens and residents are required to report their bank  accounts located outside the US to the US Department of the Treasury. Although this reporting was originally intended for US citizens living inside USA, the law even applies to the neighborhood accounts of US citizens and US persons living outside USA.

This requirement was created in 1970 as part of the Bank Secrecy Act. Under the Treasury regulations, all accounts outside of USA for ALL US persons must be reported if their combined value exceeds $10,000.

FBAR’s logic is to assume that all US persons who have financial activity outside the USA are criminals who must yearly report themselves to the Financial Crimes Enforcement Network (FINCEN). Those that do not report are declared guilty–either they are willfully guilty or non-willfully guilty of not having report themselves. This is ludicrous.

FBAR’s original thought was to create a law to make it possible to catch the bad guys for whom the enforcement agencies ASSUMED were avoiding US taxation. The FBAR penalty structure is independent of any other penalties. It is in addition to any existing tax penalty or in place of any tax penalty which cannot be applied.

The FBAR is not a tax form (of section 26 of federal law), it is a form required by criminal law (of section 31 of federal law).

Initially, the requirement was implemented as IRS form 4683, to be filed with the tax return, but in 1976 Congress increased several restrictions on the sharing of information between the IRS and other agencies, so form 4683 was replaced with TD F 90-22.1, to be sent directly to the Treasury. The form was later named the Report of Foreign Bank and Financial Accounts (FBAR).[1]. The form is now called “Financial Crimes Enforcement Network (FinCEN) 114”

The FBAR asks for the bank location, account number, and highest value of the account during the year, for each bank account located outside the US. It must be filed by June 30 every year, separate from the tax return. Starting in 2013, the form must be sent electronically.[2] The information is to be sent to the Financial Crimes Enforcement Network (FinCen).

FBAR violations can be of two types: “Willful” and “Nonwillful”. A  determination of “willful” violation of FBAR filing is determined in the court. A determination of “nonwilful” violation of FBAR filing has been assessed by IRS agents.

Although the FBAR is not under the Internal Revenue Code (Section 26), the Treasury delegated the enforcement and collection of FBAR penalties to the Internal Revenue Service (IRS) in 2003.[1]

During the period 2004 to 2008, Publication 54 of the IRS contained no instructions for filing the FBAR and contained no mention of the FBAR form.

Until 2009, the FBAR remained largely unknown and unenforced. Out of an international population of 18 million, (there are currently 7.6 million US citizens living abroad, and 10.5 million immigrants came to the US in the last 10 years), less than 0.3 million FBARs were filed in fiscal year 2009. Today there is more awareness but the number of people filing is still less than 1 million.[3–6]Prior to 2012, there were no written instructions allowing for the form to be filed retroactively.

Prior to 2013, retroactive filing of FBARs was required to be done through the punitive plea bargaining program OVDP. In 2009, the IRS created the Overseas Voluntary Disclosure Program (OVDP), still open today, where taxpayers with unreported accounts may disclose them, pay back taxes on unreported income associated with the accounts, with interest, plus a penalty of 20–27.5% of the value of the accounts. Since the penalties are based on the account value, not on unreported income or taxes, they are completely disproportional. According to a report from the Government Accountability Office (GAO), the penalties collected under OVDP were 4 to 129 times the additional tax due.[4]

OVDP even included a special class of persons to be punished–persons who were born American Citizens but did not realize it. For this crime, OVDP “only” assessed a fine of 5% upon the persons’ assets. This penalty was removed during 2013, but there is no indication that the previously-assessed fines were refunded.

A “Streamlined Compliance Program” was created by the IRS in approximately 2011, in order for persons to simultaneously come into compliance with tax reporting and FBAR filing. This program was severely limited in scope. For example, persons were not eligible unless they had never previously filed taxes. This program was not an amnesty. Those that entered the program were considered either “high risk” or “low risk” based upon arbitrary factors such as the level of education of the filer.

There are no FBAR instructions made available to immigrants to USA.

There were no mention of FBAR requirements on the 1040 instructions (including schedule B), until approximately 2012.

Problems:

The penalties for not filing the form, or for not reporting all information, are enormous. There is a non-willful civil penalty up to $10,000 (which may be abated for reasonable cause), a willful civil penalty up to the greater of $100,000 or 50% of the value of the unreported account, and criminal penalties up to $250,000 and/or 5 years in prison. Before 2004, the non-willful penalty did not exist, and the willful penalty was limited to $100,000.[3]

In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA), which requires every bank in the world to report the accounts of US citizens or residents there to the IRS. FATCA also created IRS form 8938, which requires the same information as the FBAR, and more, to be filed with the tax return. However, unlike the FBAR, the penalty for not reporting the information on form 8938 is a percentage of the unpaid tax on income associated with accounts, not of the value of the accounts. The GAO reports that the duplicative reporting requirement has created confusion among the public, and it suggests that the two forms be combined.[7]

In 2012 and 2013, the National Taxpayer Advocate (NTA) severely criticized the OVDP in her periodic reports to Congress. She acknowledges that most people were simply unaware of the reporting requirements, recommends no penalties for them, and argues that the FBAR penalties are so high that they hinder compliance instead of promoting it.[8–9] In 2012, the IRS created a streamlined compliance program for US taxpayers residing abroad, with no FBAR penalty, but the program has strict eligibility requirements.[10–11]

The events since 2009 described above have been devastating for Americans abroad and for recent immigrants in the US. Upon finding that they did not file the FBAR, a requirement previously unknown to them, they become terribly afraid that the IRS will confiscate half of what they own if they file the forms late. The prospect of FATCA, scheduled to be implemented in 2014, creates the anxiety that their own banks will report their accounts to the IRS. For Americans abroad married to foreign spouses, the possibility of draconian penalties on jointly owned accounts may lead to divorce, while for many immigrants, the money is not even theirs, as their foreign parents often add their children’s names to their own accounts. The emotional stress and despair is so great that many of them see no way but to renounce US citizenship, in the case of Americans abroad, or abandon their US residence status, in the case of immigrants. In fact, the number of people who renounce US citizenship has increased by a factor of 7.8 since 2009.[12–19]

Reporting an organization’s (business or other) violates the (civil) confidentiality agreement of most organizations.  The FBAR makes it impossible for US persons to hold positions such as business manager, CFO, CEO, Accounts Payable, and other financial positions.

Reporting a business activity violates the regulations of each exchange, such as SEC rules in USA and all of the other exchanges located in any country. It is unlawful and unconstitutional for a US law to demand its citizens to break the laws of another country.

FINCEN has apparently been made aware of this and has delayed (but not eliminated) reporting requirements for those with signature authority over accounts but without financial authority. However, FATCA requirements to report such persons with signature authority have not been ceased and have not been delayed.

Disastrous effects upon Immigrants inside USA:

There are 10’s of millions of immigrants in USA, including permanent resident visas and working visas for temporary persons. Most of these persons have legitimate needs for supporting home family, home housing, and a previous working life in their distant home of origin. A number of persons live only a portion of their year in USA.

The assumption that all immigrants are criminals needing to “come clean” by reporting themselves via FBAR to the Financial Crimes Enforcement Network is ludicrous and unconstitutional.

Unconstitutional Aspects:

8th amendment against excessive penalties (The greater of 50% or $100,000 per violation) (per account & per year?)(300% of everything one owns?) of the asset value of the account.

http://en.wikipedia.org/wiki/Eighth_Amendment_to_the_United_States_Constitution

4th Amendment Right to Privacy and prevention of search and seizure

http://en.wikipedia.org/wiki/Fourth_Amendment_to_the_United_States_Constitution

5th amendment Self Incrimination

Double Jeopardy

Criminal law should never be valid to punish “nonwillful” behavior. That is ludicrous.

Criminal law should never be enforced without action in the courts. Currently, (section 31) FBAR violations for “nonwillful” violations are assessed by IRS agents without the involvement of a court.

Besides the criticism from the GAO and the NTA, the FBAR penalties are incredibly unusual and most probably unconstitutional. Compared to other countries, the US is the only country in the world that requires financial reporting from its citizens who live abroad, and it is also the only country that penalizes voluntary disclosure with penalties on assets instead of on unpaid tax.[20] Even within the US, penalties for tax evasion are almost always a percentage of unpaid tax, the highest possible one being 75%. The disproportional nature of the FBAR penalties also likely violates the US constitution. The 8th amendment to the US constitution prohibits “excessive fines”, and the Supreme Court ruled in United States v. Bajakajian (1998) that a penalty to a similar form, the Report of International Transportation of Currency or Monetary Instruments (CMIR), was unconstitutional for being an excessive fine, “grossly disproportional to the offense” of simply not reporting an amount. 21]

The FBAR requires not only reporting of individuals, it requires reporting of business and organization accounts for which the US person has “signature authority”. This is required whether or not the person has a financial interest in the business or organization.

The FBAR creates a second layer of law to penalize any person who may be SUSPECTED of a crime of tax evasion. If FBAR penalizes a convicted tax evader, it is a double jeopardy penalty upon the criminal. This has become popular in the US media and in legislation, however it is not fair, not moral, and not according to the constitution.

Legislative Recommendations:

The unconstitutional aspects of this form need immediate legislation changes. The effects of this form upon individuals also demand immediate change.

Eliminate all reporting for US persons if residing overseas. Next the FBAR itself should be eliminated for persons not living in USA.

Relevant sections: The FBAR requirement is section 5314 of title 31 of the US Code. Its penalties are section 5321(a)(5) of title 31.

Litigation:

The unconstitutional aspects of this form need immediate litigation.

An injunction must be placed to stop the enforcement of all FBAR reporting until the constitutional and moral issues are rectified.

Voting Record:

Passed: Enactment of FBAR penalties H.R. 15073, 1970,

A BILL TO AMEND THE FEDERAL DEPOSIT INSURANCE ACT TO REQUIRE INSURED BANKS TO MAINTAIN CERTAIN RECORDS, TO REQUIRE THAT CERTAIN TRANSACTIONS IN U.S. CURRENCY BE REPORTED TO THE DEPARTMENT OF THE TREASURY.

House Vote, unanimous:  https://www.govtrack.us/congress/votes/91-1970/h255

Senate Vote: unanimous: http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=107&session=1&vote=00313

The bill was intended to affect US residents who were hiding money “offshore” (“Offshore is actually any location which is outside the borders of USA or its territories) .   It was generally only enforced upon US residents until the Patriot act began some attention to US citizens overseas.  FATCA in 2010 is the first organized enforcement upon overseas US citizens upon this formerly-dormant law.

Passed: Patriot Act: FBAR regulations amended several times since then, including provisions in title III of the USA PATRIOT Act. (See 31 USC 5311–5330 and 31 CFR Chapter X.) multiple votes

References:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

[1]       New Legislation Could Affect Filers of the Report of Foreign Bank and Financial Accounts, but Potential Issues Are Being Addressed, Treasury Inspector General for Tax Administration, September 29, 2010.

[2]       Report of Foreign Bank and Financial Accounts (FBAR), Internal Revenue Service.

[3]       Evolution of the FBAR: Where We Were, Where We Are, and Why It Matters, Hale E. Sheppard, Houston Business and Tax Journal, 2006.

[4]       Offshore Tax Evasion, United States Government Accountability Office, March 2013.

[5]       Who We Are and What We Do, Bureau of Consular Affairs, U.S. Department of State, May 2013.

[6]       Persons Obtaining Legal Permanent Resident Status: Fiscal Years 1820 to 2012, U.S. Department of Homeland Security, 2013.

[7]       Reporting Foreign Accounts to IRS: Extent of Duplication Not Currently Known, but Requirements Can Be Clarified, United States Government Accountability Office, February 2012.

[8]       The IRS’s Offshore Voluntary Disclosure Program “Bait and Switch” May Undermine Trust for the IRS and Future Compliance Programs, 2011 Annual Report to Congress, National Taxpayer Advocate, 2012.

[9]       The IRS’s Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts, 2012 Annual Report to Congress, National Taxpayer Advocate, 2013.

[10]     Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers, Internal Revenue Service, August 31, 2012.

[11]     IRS Offshore Voluntary Disclosure Programs Continue to Burden “Benign Actors” and Damage IRS Credibility, 2014 Objectives Report to Congress, National Taxpayer Advocate, 2013.

[12]     Taxpayers with overseas accounts seethe at penalties, Reuters, December 8, 2011.

[13]     U.S. Tax Laws: The Long Arm of Uncle Sam, BC Business, October 5, 2012.

[14]     American Expat Taxpayers Would Rather Ditch Citizenship Than Face New IRS Rules, Huffington Post, November 9, 2012.

[15]     Taxation for U.S. Citizens Abroad, Goldstein on Gelt, November 26, 2012.

[16]     Issues of Concern for U.S. Citizens Working Abroad, Americans Resident Abroad Working Group, March 2013.

[17]     Challenges Persist for International Taxpayers as the IRS Moves Slowly to Address Their Needs, 2012 Annual Report to Congress, National Taxpayer Advocate, 2013.

[18]     Tax Justice II: No FBAR Penalties For Otherwise Compliant Recent Immigrants To The United States, Steven J. Mopsick, August 2, 2012.

[19]     The perils of overseas tax disclosure: An immigrant’s story, Reuters, January 28, 2013.

Additional: FinCEN Notice 2014-1 FBAR Filing Requirement- Extended Filing Date Related to Notice 2013-1

The Financial Crimes Enforcement Network (FinCEN) is announcing a further extension of time for certain Report of Foreign Bank and Financial Accounts (FBAR) filings in light of ongoing consideration of questions regarding the filing requirement and its application to individuals with signature authority over but no financial interest in certain types of accounts.

On December 20, 2013, FinCEN issued Notice 2013-1 to extend the filing date for FinCEN Form 114 – FBAR1 for certain individuals with signature authority over but no financial interest in one or more foreign financial accounts to June 30, 2015.  In the past three years, FinCEN has issued identical extensions that applied to similarly situated individuals. As noted in these previous Notices, FinCEN received questions that required additional consideration with respect to the exceptions addressed in these Notices.  FinCEN is considering regulatory changes to address such questions, therefore, FinCEN is further extending the filing due date to June 30, 2016, for individuals whose filing due date for reporting signature authority was previously extended by Notice 2013-1. This extension applies to the reporting of signature authority held during the 2014 calendar year…

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