By: Tom Andrews, CPA
For those yacht crewmembers who are still not familiar with FBAR requirements (Foreign Bank Account Reporting) the Treasury department requires that a United States Citizen or Tax Resident is required to file FinCEN Form 114 if:
- The United States person had a financial interest in or signature authority over at least one financial account located outside the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
In addition to filing the Form 114 the tax payer might be required to complete Part III of Schedule B on their personal tax return and Form 8938 “Statement of Special Foreign Financial Assets” if applicable. The due date for filing Form 114 is now April 15th plus a six month extension if accepted by the IRS. The Form 114 is filed electronically at bsaefiling.fincen.treas.gov
There are both civil and criminal penalties for failure to file the Form 114 commonly referred to as FBAR. The willful failure to file penalties may reach $100,000 or 50% of the value of the offshore account whichever is greater. Several years ago, the Fourth Circuit Court of Appeals and the District Court of Utah recently upheld civil penalties for willful failure to file FBAR’s on two separate prosecutions. In both cases the courts made note that the defendants had signed their form 1040s under “penalties of perjury” and incorrectly answered “no” to Question 7(a) of their Schedule B. Basically the court was arguing that the omission of the disclosure was essentially lying to the federal government about the existence of the foreign bank accounts.
While these cases involved large bank accounts and a material amount of undisclosed income earned on these foreign bank accounts it is another reminder that the federal government is continuing to aggressively enforce tax laws and regulations that affect the international arena. While most yacht crewmembers are not hiding millions of dollars offshore the mere existence of a foreign bank account should prompt the crewmember to notify their accountant so the proper forms may be filed. Also if the yacht crewmember is simply a signor on the yachts foreign operating account there may be disclosure requirements as well.
As demonstrated in both of these cases once you sign your tax return you can be held responsible for missing or materially incorrect information on that return. It is important that you always review your tax return and ask questions if something doesn’t look or smell right, if something does not jive review it with your accountant and make sure you are providing all the information necessary to prepare an accurate tax return, ultimately the taxpayer is responsible for the accuracy of the final return.