What is BSA Compliance for FBAR, Did You Report for FATCA?

BSA Compliance for FBAR 

For U.S. taxpayers who have foreign accounts, assets, or investments, there are various international information reporting forms that the taxpayer may have to file. While most of those forms are going to be filed directly with the Internal Revenue Service, there is another form referred to as the FBAR which is filed directly with FinCEN (Financial Crimes Enforcement Network) and not the IRS — even though the IRS is tasked with FBAR enforcement. The FBAR works in conjunction with the Bank Secrecy Act or BSA — and it is important for taxpayers across the globe who are considered US persons for tax purposes to properly lodge the necessary forms to ensure they can avoid any unnecessary issues from the U.S. government. Let’s take a brief look at what BSA is and how taxpayers may comply.

What is the BSA?

As with most tax and reporting laws, the main goal of the U.S. government is to ensure taxpayers are properly in compliance with their reporting as well as their tax payments. The Bank Secrecy Act falls under the guise of the OCC or officer of the Comptroller of the currency. As provided by FinCEN:

• • • “The Currency and Foreign Transactions Reporting Act of 1970, its amendments, and the other statutes relating to the subject matter of that Act, have come to be referred to as the Bank Secrecy Act (BSA). The BSA authorizes the Department of the Treasury to impose reporting and other requirements on financial institutions and other businesses to help detect and prevent money laundering.

    • Specifically, the regulations implementing the BSA require financial institutions to, among other things, keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA is sometimes referred to as an “anti-money laundering” (AML) law or jointly as “BSA/AML,” and is codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, 31 U.S.C. 5311-5314, 5316-5336, and includes notes thereto.”

As further provided by the U.S. Government:

BSA/Anti-Money Laundering (AML) Examinations

• • • “The OCC conducts regular examinations of national banks, federal savings associations, federal branches, and agencies of foreign banks in the U.S. to determine compliance with the BSA.”

BSA & Related Regulations

• • • “The Bank Secrecy Act (BSA), 31 USC 5311 et seq establishes program, recordkeeping and reporting requirements for national banks, federal savings associations, federal branches and agencies of foreign banks. The OCC’s implementing regulations are found at 12 CFR 21.11 and 12 CFR 21.21. The BSA was amended to incorporate the provisions of the USA PATRIOT Act which requires every bank to adopt a customer identification program as part of its BSA compliance program.”

BSA Law Enforcement Tools and Resources

• • • “In addition to utilizing information filed by banks in money laundering and terrorist financing investigations, U.S. law enforcement also provides banks with access to resources and tools such as those listed here that can be used to strengthen your BSA/AML risk management programs.”

BSA Statutes

There are many different BSA statutes to consider, but the main statutes impacting individual tax filers

• • • 12 U.S.C. 1829b – Retention of records by insured depository institutions

    • 12 U.S.C. 1951 – Congressional findings and declaration of purpose

    • 12 U.S.C. 1952 – Reports on ownership and control

    • 12 U.S.C. 1953 – Recordkeeping and procedures

    • 12 U.S.C. 1954 – Injunctions

    • 12 U.S.C. 1955 – Civil penalties

    • 12 U.S.C. 1956 – Criminal penalty

    • 12 U.S.C. 1957 – Additional criminal penalty in certain cases

    • 12 U.S.C. 1958 – Compliance

    • 12 U.S.C. 1959 – Administrative procedure

    • 12 U.S.C. 1960 – Safe harbor with respect to keep open directives

    • 31 U.S.C. 5311 – Declaration of purpose

    • 31 U.S.C. 5312 – Definitions and application

    • 31 U.S.C. 5313 – Reports on domestic coins and currency transactions

    • 31 U.S.C. 5314 – Records and reports on foreign financial agency transactions

    • 31 U.S.C. 5316 – Reports on exporting and importing monetary instruments

    • 31 U.S.C. 5317 – Search and forfeiture of monetary instruments

    • 31 U.S.C. 5318 – Compliance, exemptions, and summons authority

    • 31 U.S.C. 5318A – Special measures for jurisdictions, financial institutions, international transactions, or types of accounts of primary money laundering concern

    • 31 U.S.C. 5319 – Availability of reports

    • 31 U.S.C. 5320 – Injunctions

    • 31 U.S.C. 5321 – Civil penalties

    • 31 U.S.C. 5322 – Criminal penalties

    • 31 U.S.C. 5323 – Whistleblower incentives and protections

    • 31 U.S.C. 5324 – Structuring transactions to evade reporting requirement prohibited

    • 31 U.S.C. 5325 – Identification required to purchase certain monetary instruments

    • 31 U.S.C. 5326 – Records of certain domestic transactions

    • [31 U.S.C. 5327 and 5328 have been repealed.  Section 5327, relating to financial institutions reporting on customers, was repealed in 1996. Section 5328, relating to protections for whistleblowers, was repealed by the National Defense Authorization Act for Fiscal Year 2021.] 

    • 31 U.S.C. 5329 – Staff commentaries

    • 31 U.S.C. 5330 – Registration of money transmitting businesses

    • 31 U.S.C. 5331 – Reports relating to coins and currency received in nonfinancial trade or business

    • 31 U.S.C. 5332 – Bulk cash smuggling into or out of the United States

    • 31 U.S.C. 5333 – Safe harbor with respect to keep open directives

    • 31 U.S.C. 5334 – Training regarding anti-money laundering and countering the financing of terrorism

    • 31 U.S.C. 5335 – Prohibition on concealment of the source of assets in monetary transactions

    • 31 U.S.C. 5336 – Beneficial ownership information reporting requirements

FinCEN and BSA

FinCEN refers to the financial crimes enforcement network. Concerning the BSA, FinCEN’s job is to administer the Bank Secrecy Act.

As provided by FinCEN:

• • • “The BSA requires depository institutions and other industries vulnerable to money laundering to take a number of precautions against financial crime. This includes filing and reporting certain data about financial transactions possibly indicative of money laundering, including cash transactions over $10,000 and suspicious transactions. In fiscal year 2019, more than 20 million BSA reports were filed by more than 97,000 U.S. financial institutions, providing a wealth of potentially useful information to agencies whose mission is to detect and prevent money laundering, other financial crimes, and terrorism.

    • The mere filing of these reports has significant value in deterring money laundering. However, for these reports to be of value in detecting money laundering, they must be accessible to law enforcement, counter-terrorism agencies, financial regulators, and the intelligence community. FinCEN believes that this can best be achieved through the deployment of effective technology and systems, representing solutions designed with our stakeholder needs in mind.”

What FinCEN Forms do Taxpayers File?

When it comes to compliance with FinCEN, the most common (annual) form that US taxpayers have to file is FinCEN form 114, otherwise known as the FBAR. Taxpayers will receive a BSA E identifier after the successful submission of their annual FBAR. Out of all the different international information reporting forms that a taxpayer may have to file, this form is one of the most important forms — so taxpayers should be sure to try to file it timely. If they missed it in prior years and before submitting the current year they will want to consider getting into compliance for the prior years so that they can avoid acquired disclosure.

Other International Tax Forms

There are many different international information reporting forms that a U.S. taxpayer may have to file each year depending on the specific type of foreign accounts, assets, and investments that they maintain overseas. Some of the more common forms include:

• • • FBAR

    • Form 3520

    • Form 3520-A

    • Form 5471

    • Form 8621

    • Form 8865

    • Form 8938

Some of these forms are relatively straightforward while other forms can be much more complicated — such as Form 5471 which became much more complicated and time-intensive due to the introduction of Section 965, GILTI, and FDII under the TCJA. In order to remain in IRS tax compliance with filing these forms, taxpayers must file these forms timely each year — and ensure that when they are filed, they are filed ‘substantially correct.’ Over the past several years, our Board-Certified Tax Law Specialist Team has written several articles on the different programs that are available and how they have changed over the years.  As we approach 2024, let’s look at some of the programs that still remain and which program may be right for you. It is also important to note, that the IRS reserves the right to cancel or modify these programs at any time.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.