This morning I sat in on an IRS teleconference about Foreign Bank Account Reporting (FBAR), and the Treasury Department’s Form TD F 90-22.1. Last week, during my annual CSEA SuperSeminar continuing education program, this was also discussed.
As I’ve mentioned previously, if you have $10,000 or more at any one time in a foreign bank account(s), you must do two things. First, you must check a box on Schedule B of Form 1040 to note that you have a foreign bank account, and list the country or countries where the account(s) are. You must also fill out Form TD F 90-22.1 by June 30th (July 2nd this year, as June 30th falls on a Saturday) and mail it to the Department of the Treasury (not the IRS). Examples of reportable foreign bank accounts include bank accounts, securities accounts, and accounts such as Neteller and Firepay.
What are the penalties for not reporting a foreign bank account? If you’re found to be willfully not reporting the account, it’s the greater of $100,000 or 50% of the value of the account, plus possible criminal penalties. If it’s not willful, the maximum fine is $10,000.
So if you had a foreign bank account in 2006, make sure you fill out the form. As the IRS told us during the teleconference today, the FBAR is being used to support the US’ anti-money-laundering laws.
Another component of those laws are Currency Transaction Reports (CTRs). If you accept a payment of more than $10,000 in cash, you’re required to complete a CTR. A CTR is used by a bank or other financial institution. There’s a special form for a casino (Casino Currency Transaction Report). If you’re in a trade or business, and you accept more than $10,000 in cash as a payment (say you’re an automobile dealer, and you receive a $15,000 cash payment for a car), you must fill out Form 8300.
Let me relate a horror story that a tax attorney told us at last week’s SuperSeminar. A businessman runs a chain of laundries, and receives a lot of cash. He ends up depositing $18,000 each night. So he takes the money to his local bank, deposits the money, and waits the extra 30 – 45 minutes for the bank to fill out the CTR. The “helpful” teller tells the businessman, “If you deposited $9,000 twice a day, I wouldn’t have to complete the CTRs and you would be out of here much faster.” So the businessman now makes deposits twice daily. Problem solved, right?
Well, one problem was solved, but another blossomed. By making multiple deposits of cash daily, it appeared that the businessman was structuring his deposits. Structuring is a crime if you deliberately change your banking to avoid federal reporting requirements. The bank generated a Suspicious Activity Report (SAR) on the businessman’s cash deposits. The bank is not allowed to tell the customer that a SAR has been generated. The businessman didn’t know anything was wrong until two armed federal officers knocked on his door, and started telling him, “You have the right to remain silent,….”
Eventually, after hiring a tax attorney, and spending quite a bit of money, the businessman got the charges (felonies) dropped.
The IRS investigates many SARs that are filed; they don’t look at nearly as many CTRs. And it’s easy to see why that’s the case. Over 15.3 million CTRs were filed by financial institutions in 2004 (an additional 737,000 CTRs were filed by casinos, and 162,000 Form 8300s were filed). But only 536,000 SARs were filed by financial institutions in 2004.
So what’s the moral of this tale? File your information reports (TD F 90-22.1) and don’t structure your transactions. Indeed, if you deposit $9,000 in cash twice daily, you may want to change your deposits so that one of your deposits is over $10,000 each day.
Tags: FBAR