Deadline extended for filing report on cash held overseas –more background on implications of FBAR reporting – part 2

This series of posts is discussion the FBAR in general and an extension of the deadline to file the reports from 2009 and earlier. It is important to note the deadline for filing the 2010 reports is still June 30, 2011. Not much time left for those reports.

Previously discussed the filing requirements for the FBAR report and how that would fit into the operations of an NPO with overseas activities.

How does this get messy for a mission organization?

How else could the usual functioning of a foreign mission organization create filing requirements? Let’s say you have missionaries located in the field who have a local bank account. While they likely are drawing a very modest salary, the situation could easily develop where staff could cross that $10,000 cutoff in their account and have to file a report. Merely send someone funds to buy a vehicle, for example. Your program manager and assistant manager sign on the account used for the office expenses, so they each have a personal filing requirement.

Let’s say your overseas affiliate is completely independent from you, so there is no requirement for your organization to report on the affiliate’s foreign bank accounts. However for various reasons, let’s say your affiliate has allowed your CFO to be a backup signer on their checking accounts. That would mean your CFO probably has a filing requirement.

If you have operations in a number of locations overseas then you probably have the treasurer and CFO set up with signature authority on all of the accounts to make sure that you can move the money around when you need to do so. If those accounts add up to over $10,000 at any point during the year, then your treasurer and CFO each have a requirement to report each of those accounts.

So if you as an organization, or your headquarters staff, or your missionaries located overseas either own a foreign bank account or have authority to sign on those bank accounts, there can easily be a requirement to file this form.

In a medium or large-sized organization with half a dozen or 20 field locations there could be dozens upon dozens of people who have to file the report and dozens upon dozens of accounts for which the organization has to report. 

Oh, all of those reports have to be filed annually as well.

This gets real messy real quick.

So what is driving these filing requirements?

I have not been following this issue real close since the focus of my practice is the nonprofit community and not individual tax returns, so I don’t know all the ins and outs. However, bear with me for just a moment as I put the pieces together so you can see why this is so significant to the federal government. 

The IRS has been putting a very high priority on collecting taxes due on money that people have hidden in overseas bank accounts. Those of us in the nonprofit community need to adjust our thinking for a moment to ponder that there are actually people who would arrange their finances to secret money out of the country and hide it in a safe haven to avoid paying taxes.

“But that’s illegal,” I hear you say. You are quite correct. More to the point, that’s a felony. Not only are we talking serious financial penalties but there’s jail time involved. Hard as it is to believe, there are people who take those risks.

Here is the link to the FBAR. If you are hiding money overseas to cheat on taxes, you still have a requirement to file the FBAR. Thus, in addition to the criminal and civil penalties from tax evasion, the person going down this road also has the $10,000 penalty for each year the FBAR wasn’t filed.  From a distance, it looks to me like the IRS and Treasury Department are piling on the penalties from hiding income as a way to increase the cost and risk.  I am guessing the concept is this will in turn encourage people to either obey the law or self-report their tax evasion. Remember this linkage when we talk about the extension of the deadline to report.

That whole tax evasion and enforcement effort is a big deal for the government and people playing those games. There have been lots of headlines over the last couple of years. That stuff doesn’t affect the nonprofit community. Except for that FBAR report.

The FBAR filing requirement also applies to nonprofits. The situations I described earlier can easily generate a filing requirement. 

Additional resources:

You can see the TD F 90-22.1, Report of Foreign Bank and Financial Accounts

The Journal of Accountancy article is IRS further extends deadline for certain 2009 and earlier FBARs

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One Response to Deadline extended for filing report on cash held overseas –more background on implications of FBAR reporting – part 2

  1. […] more background, see articles I wrote last year, which you can find in part one, part two, part three, and part four. Share this:FacebookEmailLike this:LikeBe the first to like […]

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