While it is generally understood that US persons are obligated to file income tax returns with the US Internal Revenue Service (IRS) each year, it is not as well understood that such persons may have additional US reporting requirements if they have an interest in a foreign financial account. The "FBAR," (Form TD F 90-22.1: Report of Foreign Bank and Financial Accounts), is the document that must be filed by US persons on an annual basis if at any point during the calendar year they have an ownership interest in or signature authority over a financial account or several such accounts) in a foreign country with an aggregate value in excess of $10,000 (the "FBAR Requirements"). Failure to file the report is punishable by both civil and criminal penalties. As there is much confusion within the US surrounding the breadth of the reporting requirements, Americans living in Israel should pay special attention to this article, as the requirements probably apply to you. This article, however, while briefly discussing the FBAR requirements should not be relied upon as a complete analysis of the filing requirement. Who is subject to the FBAR requirements? The FBAR Requirements apply to any US person. A US person includes all US citizens and resident aliens, including those living in Israel. Consequently, whether you are an American by birth or by virtue of previously having obtained a green card granting you status as a US permanent resident, you are a US person. Consistent with the foregoing, even if you have made aliyah and it is your intent never to return to the US, unless you have expatriated you will remain a US person in the eyes of the US. For purposes of the FBAR requirements, a US person also includes all US estates, trusts, partnerships and corporations. Thus, if any of these domestic entities has an interest in or authority over a financial account worth more than $10,000, the entity must file an FBAR. Furthermore, it is possible that the authorized representative from any of these domestic entities will have a filing requirement on his or her own as a result of such representatives affiliation with the entity. The determination as to whether the representative has his or her own filing requirement will be discussed in greater detail below. Limited liability companies (LLCs) are not classified as US persons under the FBAR. However, since these entities are taxed as corporations, partnerships or to the entity owner, as is the case with a single member LLC, it would appear as though the members of such entities would have a reporting requirement based upon the manner in which the entity is classified for income tax purposes. Without specific guidance on the matter, members of an LLC would be well advised to take the conservative approach and file an FBAR if the LLC meets the FBAR Requirements. What types of financial accounts have to be reported? Generally, any type of account that holds liquid assets or marketable securities will be classified as a financial account for purposes of the FBAR Requirements. Thus, everything from a cash account to a foreign mutual fund, such as an exchange traded fund, is classified as a financial account. Only financial accounts actually located in a foreign jurisdiction are subject to FBAR reporting. For example, an investment account with a US office of an Israeli bank would not require an FBAR, but an account with one an office elsewhere, be it in Israel or elsewhere, would require such a report. Similarly, a whole life insurance policy with a US insurer would not automatically generate a reporting requirement if such a policy could be obtained in the US. However, if the underlying investment account associated with the insurance is held outside of the US, as in Israel, then there would be such a filing requirement. Taxpayers should be aware that the IRS states that all records that are required to be reported on an FBAR must be kept for a period of five years. Failure to keep the records for the stated time period may result in civil penalties, criminal penalties, or both. Signature or other authority over a financial account: If an individual can order the distribution or disbursement of funds or other property from the institution where the funds or property are maintained by signing a document providing such direction (or in conjunction with one other person signing the document), then the person has signature authority over the financial account. Similarly, if an individual can exercise the same control verbally or via other means of communication, the individual has other authority over a financial account. These powers should not be confused with the power of investment. Individuals who can make investment decisions, but who do not have the ability or discretion to make disbursements, do not have an FBAR reporting requirement. Notwithstanding the foregoing, if suggestions in a report prepared by a Joint Congressional Committee on Taxation (JCT Report) are approved a US person who creates a trust with a foreign protector will be deemed to have signature or other authority over a foreign account. Specifically, the JCT Report will attribute any duties and powers held by the foreign protector to the US person. In summary, an individual who holds a power of attorney or who is a custodian of an account for a minor would appear to have the ability to exercise sufficient powers that would cause the attorney-in-fact or the custodian to have an FBAR reporting duty. Similarly, a trustee, personal representative, President of a corporation, president of a general partner or managing member of an LLC, to name but a few individuals by title, could be deemed to have signature authority or other authority over a financial account held by the entity and thus a reporting obligation. Financial Interest: The definition of what constitutes a financial interest for purposes of the FBAR is based upon who owns the interest. For example, a foreign pension account satisfying the FBAR Requirements and which is owned by an employer or a foreign government would not have to be reported by a US person, since the US person does not have any ownership over the pension account. If, on the other hand, the employer maintains individual accounts for each employee, similar to a 401-K account, then the employee would have a filing requirement. Essentially, an individual has a financial interest in every account for which the individual is the owner of record or has legal title, whether the account is for the owner's benefit or for the benefit of another. There can be many situations in which several persons have an obligation to file a report with respect to the same account. For example, if the account is owned by more than one person, such as a joint account or an account held by tenants in common, then each person has a financial interest for purposes of the FBAR. Similarly, if a US person who owns a foreign bank account gave a power of attorney to another US person to sign over the account, both the owner of the account and the individual exercising the power of attorney would have a reporting requirement. Multiple filings also would be required from the trustees of a trust with several trustees if the trust has an interest in a foreign financial account. Individuals serving as shareholders, partners and trustees may also be deemed to hold a financial interest in an account if the account is owned or the individual with legal title is: (a) a person acting as an agent, nominee, attorney or in some other capacity on behalf of the US person (b) a corporation in which the US person owns more than 50% of the total stock either directly or indirectly (c) a partnership in which the US person owns an interest in more than 50% of the profits or (d) a trust in which a US person has either a present interest in more than 50% of the assets or from which the US person receives more than 50% of the income. An officer or employee of a US corporation that is listed on a trading exchange, which has in excess of 500 shareholders and $10 million in assets, does not have to file an FBAR to reflect that the individual has signature authority or other authority over the financial investments if the individual has no personal financial interest in the account and has been advised in writing by the corporation's CFO that the corporation has filed an FBAR to report the investments. Due Dates for Filing an FBAR: If a US person has a foreign account that satisfies the FBAR Requirements, the FBAR is due on June 30 of the following year. The form is filed with the IRS Service Center in Detroit, Michigan, and is considered late if not filed at such time, since extensions are not granted. A foreign account that satisfies the FBAR Requirements must be reported even if the account does not generate taxable income. The IRS has six years within which to assess a civil penalty related to an FBAR violation. However, it is unclear whether the statute will toll if the FBAR is not filed. Penalties for Failure to File an FBAR: A taxpayer who fails to file an FBAR may be subject to both civil and criminal penalties. The same violation may be punishable by both a civil and criminal penalty. For example, there is a civil penalty of up to $10,000 for a non-willful failure to file the FBAR. However, if the amount of the transaction or the balance of the foreign account is reported on the taxpayer's Form 1040, the penalty may perhaps be eliminated as a result of the reasonable cause exception. To satisfy the reporting necessitated for the reasonable cause exception, the taxpayer must be certain to include on their Form 1040 any income generated by the foreign account and to the extent possible a detailed explanation of the transaction. For a willful violation of the FBAR reporting requirement, the penalty is now a fine equal to the greater of $100,000 or 50% of the amount of the transaction or of the balance of the account at the time of the offense. Interaction with Israeli tax reporting requirements: US taxpayers living in Israel are subject to both Israeli and US tax reporting requirements, including the FBAR requirement in the US. There is little overlap between the two countries' requirements. Foreign tax credit provisions in the laws of the two countries and the Israel-US tax treaty should prevent double taxation - but they effectively "round up" the combined tax burden to the higher of the tax rates prevailing in the two countries. Experienced tax advisors should be consulted in this regard. firstname.lastname@example.org email@example.com Kevin Packman, Adv. is a US Tax Specialist at Holland & Knight , Miami. Leon Harris is an International Tax Specialist at Ernst & Young Israel.