This article is for US taxpayers. Much has been said about the IRS’s dogged pursuit of taxpayers with unreported foreign accounts.

These accounts are reported on the Report of Foreign Bank and Financial Accounts (FBAR) when a taxpayer has a financial interest in, signature authority or other authority over foreign financial accounts, if the aggregate value of those accounts exceeds $10,000 at any time during any year.

The consequences for failing to file an FBAR when required can be drastic. As such, it is critical to understand the extent of the filing obligation, which has continued to evolve since at least 2008.

This article briefly addresses recent changes affecting the filing of the FBAR as well as news affecting those taxpayers who must report signature authority over a foreign account. (It does not, however, focus on the broad FBAR filing obligation, definition of financial interest, foreign account or other authority. Similarly, it does not discuss exceptions to the FBAR filing obligation).

Electronic filings On June 29, 2011, the Financial Crimes Enforcement Network (FinCEN) announced that all FinCEN forms must be filed electronically, with certain exceptions. FinCEN granted a general exemption on February 24, 2012, from mandatory electronic filing through June 30, 2013. Notwithstanding, it was possible to electronically file an FBAR, Form 114, since July 2011, or submit the paper file TDF 90-22.

However, the FinCEN computer system did not permit third-party preparers to file FBARs on behalf of their clients.

Since July 1, 2013, all FBARs, Form 114, have to be filed electronically; paper copies are not accepted. Any taxpayer filing a delinquent FBAR – as a participant in the voluntary disclosure program, or otherwise – must file the delinquent FBARs electronically.

Also, in an effort to assist third-party preparers, on July 29, 2013, FinCEN released a new form, FinCEN Form 114a, which permits third-party preparers to file FBARs on behalf of their clients. Form 114a, Record of Authorization to Electronically File FBARs, is not submitted or filed electronically. Rather, both the account owner and the authorized filer should keep a copy of Form 114a along with the bank records in the event either FinCEN or the IRS request to see them. Form 114a is also used by spouses filing a joint FBAR, and it allows them to designate which spouse will file.

On September 30, 2013, FinCEN announced that Form 114 had been revised to permit the filer “the ability to select or enter a late filing reason” as well as to add “a new section to enter third-party preparer information.”

According to its website, “FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis and dissemination of financial intelligence and strategic use of financial authorities.”

One way FinCEN safeguards the financial system is by requiring FBARs to be reported.

When required to be filed, FinCEN must receive the FBAR by June 30. Historically, TDF 90-22.1 is the form that was used to file the FBAR, and it was mailed to FinCEN. Thus, simply mailing the FBAR by June 30 was not sufficient, as it had to be received.

Signature authority On February 24, 2011, FinCEN announced the introduction of final regulations amending the rules under the Bank Secrecy Act provisions that apply to the FBAR. The changes were effective March 28, 2011, and provided a much needed definition and applied to FBARs being filed for calendar year 2010.

The final regulations accepted the definition contained in earlier proposed regulations, which provided that signature and other authority would be defined to include persons who have authority “(alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.”

The obligation to file an FBAR will exist only for persons who have the authority to directly deliver instructions to the financial institution and have the institution act on such directions. The final regulations also included additional exclusions exempting certain individuals with signature authority from the FBAR filing obligation.

Perhaps because of the draconian penalties that may be imposed on persons who fail to file FBARs when otherwise required to do, FinCEN has issued a number of extensions permitting taxpayers to file delinquent FBARs reporting signature authority when such taxpayer does not have a financial interest in the account.

Practically speaking, there is no justification for imposing a penalty on someone who did not file an FBAR to report signature authority when they do not have a financial interest in the account. This commonly occurs when such persons are employees of a domestic employer with foreign accounts or a domestic subsidiary of a foreign employer.

On December 17, 2013, FinCEN Notice 2013-1 was issued, further extending the filing deadline to June 30, 2015.

Who benefits from notice 2013-1 relief? The following taxpayers are able to benefit from the relief provided in Notice 2013-1: • First, an employee or officer of an investment adviser registered with the SEC who has signature or other authority over, but no financial interest in, a foreign financial account of persons that are not investment companies registered under the Investment Company Act of 1940.

• Second, an employee or officer of a regulated entity who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the regulated entity (a “controlled person”).

• Third, an employee or officer of a controlled person of a regulated entity who has signature or other authority over and no financial interest in a foreign financial account of the regulated entity or another controlled person of the regulated entity.

The extension does not apply to any other individual with signature authority. Notwithstanding, it would appear that taxpayers who are just now learning of their obligation to file an FBAR to report signature authority could benefit from the relief provided in the Offshore Voluntary Disclosure Program Frequently Asked Questions and Answers No.

17, which was issued on June 26, 2012.

FAQ No. 17 permits an individual who has properly reported all of his or her taxable income, but only recently learned that FBARs should have been filed, to report ownership of their personal foreign bank account or the fact that the taxpayer has signature authority over bank accounts owned by their employer to file delinquent FBARs and avoid penalty.

US taxpayers living in Israel US citizens and green-card holders living in Israel are not exempt from US FBAR or tax-return filing requirements, notwithstanding the US-Israel tax treaty.

This is in addition to any Israeli tax-reporting obligations they may have.

The Israeli 10-year tax holiday for new and senior returning residents (who lived abroad for 10 years) will not be relevant for US purposes.

And the US government may soon have a clearer picture of Israeli financial accounts of Americans. A draft FATCA (Foreign Account Tax Compliance Act) agreement is currently being negotiated by the Israeli and US governments.

To sum up, greater transparency is here to stay.

As always, consult experienced tax advisers in each country at an early stage in specific cases.

kevin.packman@hklaw.com leon@hcat.co Kevin Packman is a partner and chairperson of the offshore compliance team of Holland & Knight, LLP, in Miami.

Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.

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