ALKHOBAR: A deadline is approaching for anyone who is required to file a Report of Foreign Bank and Financial Accounts (FBAR) to the US Department of Treasury, Internal Revenue Service (IRS). This report normally must be filed by United States persons by June 30 of each year for accounts held outside the United States the previous year. Such account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties or both. The civil penalties are severe and could be assessed at $10,000 or more for each account not reported.
The IRS has recognized that there are many who have not filed FBARs and the agency has instituted a special provision called a voluntary disclosure program for this year only, which in most cases would allow the FBARs to be filed by Oct. 15, 2009. This would prevent criminal prosecution of late filing individuals. The IRS is looking for FBARs that should have been filed for the past six years.
Even if a United States person does not own any US income tax, if the aggregate value of all that person’s foreign financial accounts exceeds $10,000 at any time during the calendar year, the person must file an FBAR disclosing all foreign accounts and their value. If a United States person owns or has authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust or other types of financial accounts, and the aggregate value of the financial accounts exceeds $10,000, then an FBAR report must be filed annually. Read more about the details of the FBAR at www.IRS.gov.
In Saudi Arabia there are many dual nationals — citizens of the US and another country. Holding the US passport makes an individual a citizen. All US citizens, even dual nationals must follow the FBAR provisions or they may be prosecuted. It is not only US citizens who must file FBARs. All “United States persons,” which includes a citizen or resident of the United States, or a person in and doing business in the United States come under the provision. Whether a person is considered, for FBAR purposes, to be in, and doing business in the United States is determined based on an analysis of the facts and circumstances of each case. Persons who are merely visiting the United States or who sporadically conduct business in the United States, are not in, and doing business in, the United States for FBAR reporting purposes. “I had no idea about the FBAR,” said Om Hussain, an American married to a Saudi. “I thought because I was under the threshold for the Foreign Earned Income Tax Exclusion, I wasn’t required to file any reports with the IRS. I didn’t know that I had to report my Saudi bank account.”
She is wrong on both assumptions. According to the IRS, the Foreign Earned Income Tax Exclusion must be chosen on annual tax returns. Additionally, the FBAR report is independent of any tax obligation and must be file if a United States person exceeds $10,000 as the total value of all their foreign held accounts on any date during the year.
Some United States persons are not aware as well, that it is only foreign earned income which may be exempted from tax obligations. Stock dividends, profits from share trades, real estate sales and many other income generating activities are not covered by the exclusion because the income is not earned in the form of work, such as wages.
“I have been trading shares for my father through my bank account. I was born in the United States and hold a US passport, although I have never lived there,” said a young Saudi, who asked that his name be withheld. “I just heard about the FBAR today and the taxes on securities. I am worried that I owe a lot of taxes and I don’t know what to do. I am going to speak with my father today to get help.”
The most important thing to do for those who have not filed FBARs or have not filed US taxes is to quickly move to rectify the situation, as the voluntary disclosure program ends on Thursday. The IRS has information about this program at: www.irs.gov/compliance/enforcement/article/0,,id=205909,00.html. Be advised that under international agreements, if the Saudi Arabian Monetary Agency so orders, any Saudi financial institution will provide the IRS with information about your account. Some new agreements coming into force in 2010, make disclosure of funds held by US persons in foreign financial institutions more likely. If an account is discovered at that time, the IRS will look back six years and at its discretion may bring forth criminal or civil penalties — this may include prison or fines over $100,000.