Taxes for Missionaries: IRS Gives Grace for Failure to File an FBAR

A “United States person” is required to file a Report of Foreign Bank and Financial Accounts (“FBAR”) if the citizen has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

“United States person” includes a citizen or resident of the United States, a domestic partnership, a domestic corporation, and a domestic estate or trust. See IRS Announcement 2010-16.

Example 1. A church establishes a $12,000 working fund for a missionary. The money is held in the missionary’s country. The missionary has signature authority on the account. He has to file an FBAR.

Example 2. The chairman of the mission team at the American sponsoring church also has signature authority over the account. He also owes an FBAR.

Example 3. Same as Example 2. The church also owes an FBAR because the church has authority over the account via its missions team chairman, an officer of the church.

Example 4. A missionary is saving for a down payment on a house in a foreign nation. The account balance was $11,000 but the missionary draws $2,000 out to pay for an emergency trip to the U.S. The account is held in a foreign bank. The missionary must file an FBAR because the account was over $10,000 at a point during the year.

Penalty for non-filing

Generally, the civil penalty for willfully failing to file an FBAR can be up to the greater of $100,000 or 50% of the total balance of the foreign account at the time of the violation.  This penalty is applicable only in cases in which there is willful intent to avoid filing.

Non-willful violations that the IRS determines are not due to reasonable cause are subject to a penalty of up to $10,000 per violation.

There is no penalty in the case of a violation the IRS determines was due to reasonable cause.

Notice that a non-willful violation can become willful if the missionary innocently fails to file and yet continues not to file even after learning about the rule.

What is a foreign country?

A “foreign country” includes all geographical areas outside the United States, the commonwealth of Puerto Rico, the commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

What constitutes signature or other authority over an account?

A person has signature authority over an account if he can control the disposition of money by delivery of a document containing his signature (or his signature and that of one or more other persons) to the bank or other person with whom the account is maintained.

Other authority exists in a person who can exercise power that is comparable to signature authority over an account by direct communication to the bank or other person with whom the account is maintained, either orally or by some other means.

How do filers report their accounts to the IRS?

Filers report their foreign accounts by (1) completing boxes 7a and 7b on Form 1040 Schedule B (for individuals), box 3 on the Form 1041 “Other Information” section (for trusts and estates), box 10 on Form 1065 Schedule B, or boxes 6a and 6b on Form 1120 Schedule N (for corporations) and (2) completing Form TD F 90-22.1 (the “FBAR”).

When is the FBAR due?

The FBAR is due by June 30 of the year following the year that the account holder meets the $10,000 threshold. An extension to file Federal income tax returns does not extend the due date for filing an FBAR. Filers cannot request an extension of the FBAR due date. See also IRS Notice 2010-23.

If a filer does not have all the available information to file the return by June 30, they should file as complete a return as they can and amend the document when the additional or new information becomes available.

What if I didn’t know I needed to file?

If you learn you were required to file FBARs for earlier years, you should file the delinquent FBARs and attach a statement explaining why they are filed late.  You do not need to file FBARs that were due more than six years ago, since the statute of limitations for assessing FBAR penalties is six years from the due date of the FBAR. Keep copies of what you send for your record, .

Can I avoid penalties?

The IRS has issued detailed guidelines regarding how it will assess penalties. More generally, the IRS says,

Factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause include reliance upon the advice of a professional tax advisor who was informed of the existence of the foreign financial account, that the unreported account was established for a legitimate purpose and there were no indications of efforts taken to intentionally conceal the reporting of income or assets, and that there was no tax deficiency (or there was a tax deficiency but the amount was de minimis) related to the unreported foreign account.  There may be factors in addition to those listed that weigh in favor of a determination that a violation was due to reasonable cause.  No single factor is determinative.

Factors that might weigh against a determination that an FBAR violation was due to reasonable cause include whether the taxpayer’s background and education indicate that he should have known of the FBAR reporting requirements, whether there was a tax deficiency related to the unreported foreign account, and whether the taxpayer failed to disclose the existence of the account to the person preparing his tax return.  As with factors that might weigh in favor of a determination that an FBAR violation was due to reasonable cause, there may be other factors that weigh against a determination that a violation was due to reasonable cause.  No single factor is determinative.

I messed up and failed to file. What should I do?

Get the advice of a CPA or tax attorney. File the late FBAR.

(Rom 13:6-7 ESV)  6 For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing.  7 Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.

Explain why you didn’t file on time, touching on the bases the IRS considers important — money was for missions, not illegal activity. That sort of thing.

Where can I get more information?

Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.

FAQs Regarding Report of Foreign Bank and Financial Accounts

FBAR Form with Instructions

IRS Manual, Penalty Guidance on FBARs

Disclaimer

All legal discussions are informational only, do not create a lawyer-client relationship, and may not be relied on.

Unless expressly stated otherwise on this website, (1) nothing contained in this website was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended; (2) any written statement contained on this website relating to any federal tax transaction or matter may not be used by any person to support the promotion or marketing or to recommend any federal tax transaction or matter; and (3) any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any federal tax transaction or matter contained in this website. No one, without our express written permission, may use any part of this website in promoting, marketing or recommending an arrangement relating to any federal tax matter to one or more taxpayers.

 

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About Jay Guin

I am an elder, a Sunday school teacher, a husband, a father, a grandfather, and a lawyer. I live in Tuscaloosa, Alabama, home of the Alabama Crimson Tide. I’m a member of the University Church of Christ. I grew up in Russellville, Alabama and graduated from David Lipscomb College (now Lipscomb University). I received my law degree from the University of Alabama. I met my wife Denise at Lipscomb, and we have four sons, two of whom are married, and I have a grandson and granddaughter.
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3 Responses to Taxes for Missionaries: IRS Gives Grace for Failure to File an FBAR

  1. Todd Collier says:

    Just a friendly reminder to all the ministry types…’tis the season to turn in your “actual” housing allowance figures to the treasurer, secretary or other local “keeper of the records of the purse” and submit your 2012 HA estimates.

    Don’t make them chase you.

  2. Tim Archer says:

    Trying to remember if I violated this or not while living in Argentina. I think I may have at some point when selling/purchasing real estate.

    Thankful for the statute of limitations! I wasn’t even aware this existed.

  3. Avatar of Jay Guin Jay Guin says:

    Tim,

    It’s a very obscure law, poorly publicized even among tax professionals, and awful to violate. One of many severely overreaching laws passed lately in an effort to grab revenues. Again, the Congress shoots flies with bazookas.

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