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As an expat, FinCEN Form 114 or FBAR is one important form when it comes to tax filing. This form is where you report all of your non-US financial accounts including the highest balance for each of your financial accounts during the year.

The complexity of this process occurs once you transfer funds between accounts. Double counting may seem like a hard issue to deal with but this article will help you understand better.

Double-counting your balances after fund transfer
If you have transferred funds between accounts, these balances will be counted twice. As a taxpayer, you don’t want to be seen as one who has more assets than what you actually have. But this is not a thing to be worried about.
The US Department of Treasury understands that fund transfer can cause double counting. The requirement is for you to declare “the maximum account value of each account” during the whole timespan included in your FBAR reporting period. You do not have to make sure your account’s total worth ties up with your balances.
Adjusting your balances is not only an incorrect way of doing it, it is also not needed. You just have to report the maximum balance of each account that you must report.

Consequences of double-counting
When you report your transferred funds twice, you do not have any financial consequences. Take note that the FBAR is an informational form. No tax value will be taken from the amounts reported. It works similarly with reporting a low account value. There is no financial benefit. Doing so is also a violation of the law. The main purpose of the FBAR is to report the actual highest value of your accounts during the year.

When you do not report eligible accounts, this can lead to consequences. Willful violations can lead to penalties from the IRS and the Treasury. The highest amount of penalties would be 50% of the balance in the account at the time of the violation or an amount greater than $100,000. When you fail to report and maintain records, this will result in violations for each account.

If you have filed your FBAR before the deadline, you don’t have to worry.

Willful violation and what it means
– A willful violation is a term used in determining penalties. IRS has guidelines in determining the amount of penalty for a willful violation.
– If the taxpayer shows a voluntary and intentional violation of known tax filing laws, it can be considered as a willful violation.
– IRS has the responsibility to show proof when the willfulness is found. The claim must be supported by evidence.
– If the person knows that there is a need to declare his account balances, there should be a conscious choice not to file FBAR. Only then can it be considered as a willful violation.
“Willful blindness” is another related term and it means making a conscious effort not to know about FBAR requirements. There is willfulness when a person intends not to learn about FBAR reporting and recordkeeping requirements.

Schedule B and willful violation
Schedule B or tax return can be used to determine willfulness. Schedule B has instructions for the taxpayer regarding how to report non-US financial accounts. It also discusses the duty to file FBAR.
IRS deems it automatic for you to read the information from the government found in your tax forms, especially if you have non-US bank accounts. In reality, it will be hard for a tax assessor to give penalty for one violation. But when you fail to learn of filing requirements and there is evidence of an effort to hide the accounts, these can be grounds for a willful violation. Checking the wrong box or no box on Schedule B is not enough.

The biggest problems arise from failure to accurately report and/or conceal non-US financial accounts. Remember to report the highest balance on each account throughout the year. Consider the change in the amounts due to fund transfer between accounts even if it only happened for a short time.