China-Based U.S. Expats Need to Conduct FBAR Filings by this Thursday

June 27, 2011 Posted by China Briefing Reading Time: 3 minutes

U.S. signatories of RO, WFOE, and JV bank accounts may also be required to file

Jun. 27 – The U.S. Internal Revenue Service has issued reminders to all U.S. citizens with bank or other financial accounts in a foreign country, or signature authority over such an account, that they may be required to report the account to the U.S. Department of the Treasury by June 30 each year.

Foreign account owners may have to report their accounts to the government, even if the accounts do not generate any taxable income. U.S. nationals are required to file a Report of Foreign Bank and Financial Accounts (FBAR), Treasury Department Form TD F 90-22.1, each year if they have a financial interest in or signature authority over financial accounts – including bank, securities or other types of financial accounts – in a foreign country, if the aggregate value of these financial accounts exceeds US$10,000 at any time during the calendar year. The requirements probably extend to any U.S. persons who have “signature authority” over a foreign bank account including RO, WFOE and JV accounts in China not withstanding they have no personal interest in the accounts.

For 2010, the due date for filing the FBAR is Thursday, June 30, 2011, though some financial professionals will have until June 30, 2012 to file. Unlike with federal income tax returns, requests for an extension of time to file an FBAR cannot be granted.

PRC-based U.S. executives who split part of their income between China and payment in Hong Kong may also come under particular scrutiny as the IRS has targeted Hong Kong for special attention following its recent challenges over Swiss bank accounts held by U.S. citizens.

The FBAR is not an income tax return and should not be mailed with any income tax returns. The form needs to be received, not postmarked, by June 30 of the year following the calendar year in which the aggregate value of the foreign accounts, on any one day, exceeds US$10,000. But for 2009 and earlier years, the due date is generally November 1, 2011 for individuals whose filing deadline was properly deferred under Notice 2009-62 or Notice 2010-23, and have no financial interest in a foreign financial account but with signature or other authority over that account.

While in prior years the IRS has allowed a deferral of the obligation to file FBAR returns where an employee or officer of a company had signatory authority, but no financial interest in the account, the final FBAR rules now require such individuals to file. There are few exceptions extending mainly to employees of publicly listed corporations and financial institutions. The FBAR requirements extend to employees and officers of private U.S. companies and their foreign subsidiaries which have signature authority over a foreign account of such an entity.

Civil and criminal penalties for non-compliance with the FBAR filing requirements are significant. Civil penalties for a non-willful violation can range up to US$10,000 per violation. Civil penalties for a willful violation can range up to the greater of US$100,000 or 50 percent of the amount in the account at the time of the violation. Criminal penalties for violating the FBAR requirements while also violating certain other laws can range up to a US$500,000 fine or 10 years imprisonment or both. Civil and criminal penalties may be imposed together.

FBARs are filed with the U.S. Department of the Treasury, P.O. Box 32621, Detroit, Michigan, 48232-0621. The address for delivery of an FBAR by a method other than U.S. mail is:

U.S. Department of the Treasury
Currency Transaction Reporting
985 Michigan Avenue
Detroit, Michigan, 48226

The FBAR form is not available for electronic filing, but many income tax software packages can prepare a printed copy. FBAR forms and instructions are also available on IRS.gov or the Financial Crimes Enforcement Network web site, FinCEN.gov, and by calling (+1)1-800-829-3676.

Taxpayers who need assistance completing Form TD F 90-22.1 can contact the IRS by telephone at (+1)1-800-800-2877, or via email at FBARquestions@irs.gov.

China-based U.S. expats who require additional assistance or clarification may contact Richard Cant of Dezan Shira & Associates at tax@dezshira.com.

Dezan Shira & Associates are a specialist professional services firm handling FDI legal and tax issues for multinationals in China. Established in 1992, the firm has twelve China offices, five in India and two in Vietnam. Please contact the firm for assistance with China investment legal or tax matters, visit the practice’s web site at www.dezshira.com, or download the firm’s brochure here.

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