On October 30, 2017, Paul Manafort Jr. was indicted for concealing his interests in several foreign bank accounts, as well as tax evasion and a host of other criminal charges. The indictment reminds us how important it is to follow the strict guidelines of the reporting regime that the Internal Revenue Service (IRS) and the US Department of the Treasury have established to disclose foreign bank accounts.
Pursuant to the Bank Secrecy Act, a US citizen or resident (a US Person) is required to disclose certain foreign bank and financial accounts which he or she has “a financial interest in or signature authority over” annually. This obligation can be triggered by direct or indirect interests; a US Person is treated as having a financial interest in a foreign account through indirect ownership of more than 50 percent of the voting power or equity of a foreign entity, like a corporation or partnership. The US Person is required to annually disclose the interest on FinCEN 114, Report of Foreign Bank and Financial Accounts, which is commonly referred to as the FBAR. The disclosure requirement is triggered when the aggregate value of the foreign account exceeds $10,000. The form is filed with your federal income tax return.
The civil penalties for failing to timely disclose an interest in a foreign account can be severe, and in the case of willful violations, can reach up to 50 percent of the highest aggregate annual balance of the unreported foreign financial account each year. The statute of limitations for FBAR violations is six years, and the willful penalty may be assessed for more than one year, creating extreme financial consequences for FBAR reporting failures.