Who Must File TD F 90-22.1Every US citizen or resident alien, partnership, corporation, estate, or trust must file TD F 90-22.1 if they have "financial interest in or signature authority, or other authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year." (From the Instructions for TD F 90-22.1)
Exceptions to FilingYou do not need to report accounts held at US military banking facilities, even if those banks are located in foreign countries. Military banks are considered domestic U.S. banks.
You do not need to report accounts held at banks located in Guam, Puerto Rico, and the US Virgin Islands.
You also do not need to report U.S.-based accounts held by a branch or division of a foreign bank.
Law Governing the Report of Foreign Bank AccountsThe law requiring US citizens and resident aliens to report their foreign bank accounts is found at 31 CFR Chapter X (previously 31 CFR 103).
Section 103.24 reads as follows:
Sec. 103.24 Reports of foreign financial accounts.
(a) Each person subject to the jurisdiction of the United States (except a foreign subsidiary of a U.S. person) having a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country shall report such relationship to the Commissioner of the Internal Revenue for each year in which such relationship exists, and shall provide such information as shall be specified in a reporting form prescribed by the Secretary to be filed by such persons. Persons having a financial interest in 25 or more foreign financial accounts need only note that fact on the form. Such persons will be required to provide detailed information concerning each account when so requested by the Secretary or his delegate. (31 CFR 103.24)
Statute of Limitations for Foreign Bank Account ReportingThere is a six years statute of limitations for the assessment of civil penalties, and five years for the assessment of criminal penalties. (Source: New York State Bar Association, citing 31 U.S.C. section 5321(b)(1) and 18 U.S.C. section 3282.)
The IRS advises that taxpayers should keep their foreign bank account report for five years. "The records must be retained for a period of 5 years from June 30th of the year following the calendar year reported and must be available for inspection as provided by law. Retaining a copy of the filed FBAR can help to satisfy the record keeping requirements." Additionally, I recommend that taxpayers should keep copies of their bank statements as well as their foreign bank account report for at least six years (which corresponds to the longest statute of limitation period).
Penalties for Not FilingThe Treasury Department may impose very stiff penalties for failing to file TD F 90-22.1.
"Civil and criminal penalties, including in certain circumstances a fine of not more than $500,000 and imprisonment of not more than five years, are provided for failure to file a report, supply information, and for filing a false or fraudulent report." (From the Privacy Act Notice on Form 90-22.1)
According to tax attorney Howard Rosen, the following penalties can be assessed:
- Failure to File Penalty – up to $250,000 and/or up to 5 years in prison for any person "willfully violating" the requirements to file. (31 CFR 5322a penalty)
- Fraud Penalty – up to $500,000 and/or up to 10 years in prison for any person "willfully violating" the requirements to file "as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period." (31 CFR 5322b penalty)
- False Information Penalty – fine or up to 5 years in prison for any person providing false, misleading, fictitious, or fraudulent statements on TD F 90-22.1; or up to 8 years in prison if the false information involves domestic or foreign terrorism. (18 CFR 1001 penalty)