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If you have a foreign bank account, foreign currency account, and are a U.S. person, you need to have reported those accounts by June 30, according to this reminder IRS press release (dated 6/17). As you can infer from the date of this post, I blew it and now have to beg for mercy from the Department of the Treasury and IRS.

Dear Department of Treasury, I beg for your mercy.

I now endeavor to help others not make this same mistake by providing some FAQs on the process of submitting the appropriately named FBAR (Report of Foreign Bank and Financial Accounts) form.

But first, some background on how I lost faith in the U.S. dollar

Image courtesy of Freaking News

• On 3/20 I posted about the new CNY exchange traded notes announced by Morgan Stanley & Van Eck Global on 3/17, as a way of hedging RMB appreciation.
• By 3/30 this year, I concluded that RMB appreciation was inexorable and might even require a “one-off maxi-revaluation” to stem speculative inflows.
• On 4/2, I posted about the decline of the US dollar’s reserve currency status as another contributing factor toward USD/RMB exchange rate.
• On 4/11, I posted that I exchanged USD for RMB at the rate of 6.9835 into my China Merchants Bank account, and that I had established an Everbank RMB account (in the US) at 6.9544. On 4/10 the central parity rate was set at 6.992.
• On 7/11, Xinhua announced that the central parity rate of the RMB was set at 6.8397 (see China Foreign Exchange Trading System website Chinamoney.com.cn (zh) for more info). So the RMB has appreciated by 2.2% in 3 months, or a 9.2% annualized appreciation rate. So clearly, putting all my spare cash in RMB (even in the 0% interest Everbank WorldCurrency Access Deposit account) is a no brainer.

USD-RMB exchange rate chart, 2008. See a pattern?

Source: Yahoo! Finance

Now back to the FBAR. I choose to pronounce this “fubar” which has another meaning in English.

Q: Who needs to file the FBAR (Report of Foreign Bank and Financial Accounts)? I mean, I really don’t have a lot of money abroad.

A: If you have a foreign account, and the value of that account exceeds $10,000, you need to file a FBAR. More at IRS.gov here.

Q: Is this part of my Federal Tax Return? Can I get an extension?

A: No and no, that would be too easy and too obvious. According to the IRS:

The FBAR is not to be filed with the filer’s Federal income tax return. The granting, by IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. There is no extension available for filing the FBAR. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

Q: Umm, how was I supposed to know about this?

A: Well did you monitor the press releases on the IRS website? The IRS published a press release IR-2008-79 on June 17 specifically to remind taxpayers to report certain foreign bank and financial accounts by June 30. An interesting fact from the press release:

Since 2000, the number of Report of Foreign Bank and Financial Accounts (FBAR) forms received by the Treasury has increased by nearly 85 percent, from 174,528 in 2000 to 322,414 in 2007. Despite this significant increase in filings, concern remains about the degree of reporting compliance for those who are required to file.

Only 322,414 were received in 2007, and I’m sure that there isn’t 100% compliance with this requirement. But even then, it seems like a very small number of U.S. persons actually have a foreign account.

Q: What’s the deadline again?

A: June 30, 2008 for the 2007 calendar year. Yes, if you haven’t done this already, you are delinquent.

Q: OK, what form do I use?

A: Form TD F 90-22.1 (pdf) located on the IRS website. If you only have 1 account, its less than 1 page long.

Q: Where do I send it?

A: Don’t send it to where you send your normal tax returns. According to the IRS, you should send it here:

U.S. Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621

Q: No offense, but I don’t trust anything in the blogosphere these days! Where can I get the official information?

A: Yes, in general, don’t trust bloggers for legal, tax and compliance information unless they happen to be licensed professionals in the right field. So go get the real deal here:

• IRS FAQ on Report of Foreign Bank and Financial Accounts (FBAR)
• IRS copy of Form TD F 90-22.1 (pdf)
• email the IRS: FBARquestions@irs.gov
• call the IRS at (800) 829-3676

Q: Why do I have to do this?

A: This seems to be under the Financial Crimes Enforcement Network (FinCEN), an agency of the US Department of Treasury. It seems partially motivated by tax compliance and partially motivated by addressing money laundering for drug trafficing and terrorist activity.