Posts Tagged ‘FBAR’

Does a Nonresident Alien Spouse that Has Elected to be Treated as a US Person Need to File an FBAR?

Monday, June 29th, 2015

With the FBAR deadline upon us, an interesting question arose: Does a spouse covered by the §1.6013-6 regulation allowing a nonresident alien individual to be treated as a resident need to file an FBAR? Logic says no; the FBAR comes out of the Bank Secrecy Act, not the Tax Code. And the IRS agrees with logic: “If the wife is non us person for FBAR therefore she does not have a filing requirement.” (That quote comes from a question I submitted to the FBAR group at the IRS.)

But beware, if the taxpayers have a Form 8938 filing requirement the wife’s accounts will need to be reported on that form. That’s a tax form, so the accounts would need to be included.

FBAR Due in One Week

Tuesday, June 23rd, 2015

The Report of Foreign Bank and Financial Accounts (Form 114, the FBAR) is due on June 30th. The form must be electronically filed with FINCEN. Your tax professional may be able to do it through his software (we can) or you can do it yourself using the BSA EFile system. There is now an online form you can use (besides Adobe reader) that may work better (it certainly can’t work worse).

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

There are ridiculous penalties if you willfully fail to file an FBAR (half the balance in the account or $100,000 (per account), whichever is greater). Thus, as I said last year, just file the FBAR…timely.

FBAR Filing Follies

Monday, August 18th, 2014

Joe Kristan reported last week that you cannot use Adobe Acrobat to file the FBAR; you must use Adobe Reader. In fact, if you have Adobe Acrobat installed on your computer and use Adobe Reader it won’t work either. Well, I have some mild good news about this.

It appears that if you’re using an older version of Adobe Acrobat (Acrobat 9 or earlier), you will get a warning from FINCEN that the program isn’t right but the filing will go fine. However, the filing will not work with Acrobat X and XI; apparently Acrobat X or XI cannot even be installed on your computer for the filing to work. I guess I’m lucky in that I use Acrobat 9. (We also file most, but not all, of our FBARs using our tax software. Our tax software, ProSeries, added that ability in April.)

I echo what Joe wrote:

Requiring taxpayers to screw around with their computer setup just to meet their FBAR requirements is outrageous. Even if FBAR filing is not merely a sadistic plot — and it sure acts like one — it seems more designed as a hook to punish violators — purposeful and accidental — than a way to gather compliance information. As usual, Congress goes after a small set of violators by firing into the crowd.

The idea that an older piece of software works just fine but the new one doesn’t is ridiculous. It’s also par for the course when dealing with the FBAR.

The Hom Decision and the Past (2008 – 2012)

Sunday, August 17th, 2014

Back in June, a federal district court ruled in United States v. Hom that foreign online gambling accounts are reportable for FBAR purposes. An obvious question is what does this mean for prior years.

First, these are just my thoughts. I am not giving advice here on what any individual should or should not do. You need to consult with your own tax professional and possibly an attorney knowledgeable in FBAR issues.

There are three different foreign account reporting requirements for Americans:
1. The boxes on Schedule B of Form 1040;
2. The FBAR; and
3. Form 8938.

Each of these has a different statute of limitations. Form 8938 has only been in existence for two years, so it only applies for 2012 and 2013. The statute of limitations on tax returns is generally three years (though there are exceptions), so the boxes on Schedule B apply only to 2011 – 2013. The statute of limitations on the FBAR is six years; 2007 and earlier years are beyond the statute date. Finally, online gambling accounts were reportable for 2008 and 2009 (even before the Hom decision), so the years we’re concerned with for the FBAR are 2010-2013.

There are also different financial thresholds for these reports. On Schedule B, any foreign financial account must be reported. For the FBAR, the requirement kicks in at an aggregate balance of $10,000. Form 8938 must be filed if you are in the US and have $50,000 aggregate on December 31st or $75,000 aggregate on any other day of the year. If you are filing Married Filing Jointly (MFJ), the balance amounts double for Form 8938. If you are outside of the US, the limits are $200,000 aggregate on December 31st or $300,000 on any other day of the year (again, the balance limits double if you file MFJ).

Because I am a licensed tax professional, the only advice I can give is to comply with the law.

But Russ, you ask, what is the law? The IRS told us back in 2011 we didn’t have to report online gambling accounts; now a judge says we do. What’s right?

Unfortunately, no one knows. We’re left to make guesses. Oh yes, it’s a well known principle that the IRS is not bound by the answers they give. This makes no sense to me (or most tax professionals) but this, too, is the law.

So let’s look at some scenarios:

1. An individual has online gambling accounts with more than $100,000 in them since before 2008. This individual also has not filed tax returns claiming the income from one or more of his online gambling accounts. He also maintains foreign bank accounts. Anyone in this situation should speak to a tax attorney familiar with FBAR issues immediately. This individual has major compliance issues and is definitely a potential target of criminal prosecution. Usually, if you go first to the IRS before they find you, criminal prosecution is unlikely.

2. An individual began online gambling in 2012, but just in the Nevada and New Jersey legal sites. She has filed her tax returns noting her income (including the gambling income). There are no FBAR or other foreign account issues. The current regulated online gambling sites in Delaware, Nevada, and New Jersey are not foreign financial accounts.

3. An individual began online gambling in 2012 with non-US-regulated sites. His aggregate balance has never reached $10,000. The question here is whether this individual should amend his 2012 returns to note the foreign financial accounts. (Question 7a of Schedule B asks, “At any time during 2012, did you have a financial interest in or signature over a financial account…located in a foreign country?”) Amending your return for this would not change your tax but would extend the statute of limitations on the return. Because I am a licensed tax professional, the only advice I can give is to amend your return. Of course, given that this issue is not settled law, and there is no specific penalty for answering Question 7a incorrectly, most individuals will not amend their tax returns for this.

4. An individual was playing on Full Tilt Poker from 2008 – 2011 (until “Black Friday”). Since April 15, 2011, he has not played on any of the unregulated sites. This individual filed FBARs for 2008 – 2009 but not for 2010 and 2011. Two weeks ago this individual received through remission the $20,000 balance that he had on Full Tilt Poker. He did include his 2008, 2009, and 2010 Full Tilt winnings on his tax returns. He did not include his 2011 winnings on his 2011 return (but he did not make any withdrawals during 2011, so based on constructive receipt he did not have any reportable 2011 winnings); he plans on including his 2011 winnings on his 2014 tax return (filed in 2015).

Based on the Hom decision, this individual has a foreign financial account for 2010 and 2011. (It’s somewhat unclear whether or not he really has a foreign financial account for 2011. The “balances” at Full Tilt in 2011 were effectively not real; the Department of Justice charged that Full Tilt Poker was a “massive Ponzi scheme.”) That said, I would conclude based on the Hom decision that this individual had FBAR reportable foreign financial accounts.

The problem here is that late-filed FBARs can be subject to penalties. An individual late filing because it was unclear whether the account should be reported would almost certainly not be subject to the “willful” penalties; however, the non-willful penalties can be up to $10,000 per account. Each individual will have to weigh reporting these or not.

If the taxpayer amends his 2011 return (to note that he has a foreign financial account and that he filed an FBAR), this extends the statute of limitations. The 2010 return is beyond the statute date and would not need to be amended to note the FBAR.

There are numerous other scenarios I could write; most will feature some version of the above scenarios. There are some conclusions we can draw:

1. Even with the Hom decision it is possible that other courts will rule differently. This was a decision of a US District Court. An appellate court or another US District Court could rule differently; it is not clear that online gambling accounts are really the same as banks.

2. However, prudence requires that for 2013 returns (and forward) that until FINCEN announces that they do not want online gambling accounts reported on the FBAR, and until the IRS (or Department of the Treasury) announces that they do not want online gambling accounts reported on Form 8938 and the check boxes on Schedule B of Form 1040, taxpayers should report these accounts.

3. When an individual has reportable online gambling accounts for the past, he or she will have to weigh reporting versus the consequences of reporting. Everyone’s situation is different so there is no one size fits all advice here.

4. That said, individuals with unreported foreign financial accounts (on an FBAR) and who haven’t filed tax returns for those years should run, not walk, to a tax attorney who specialized in FBAR matters.

The best advice I can give is that if you are impacted by this, speak to your tax professional. Everyone’s situation is different. If you let your tax professional know how you are impacted by the Hom decision, your tax professional should be able to give you good guidance.

FBAR Deadline Is June 30th, but It’s Not a Midnight Deadline

Thursday, June 26th, 2014

Almost every tax deadline is a postmark deadline. If your return is postmarked by midnight of the deadline day it’s considered timely filed. If you file it electronically, and it’s filed by midnight, it’s timely. Of course, with every rule there’s an exception. That exception is definitely the FBAR.

The FBAR–Report of Foreign Bank and Financial Accounts–must be electronically filed. It’s due on June 30th and there are no extensions. So if I file it by midnight local time on June 30th I’m fine, right?

My software company says no. Here’s the message they sent me:

As a reminder, taxpayers that are required to report foreign bank and financial accounts must file Form 114 electronically by June 30th, and the returns must be either Accepted or Accepted with Errors by midnight, June 30th. We strongly recommend that 114 returns be filed no later than 6PM in your time zone to allow for agency processing. FinCEN does not recognize an e-postmark to timely filing, unlike the IRS. Additionally, there is no extension of time to file 114 FBAR returns.

So I took a look at an FBAR I submitted this past week:

Yes, it took over two days to accept the FBAR…and that’s what I’ve been seeing consistently. Assuming my software company is right, that means the true deadline for FBARs is Saturday…which I find hard to believe. I doubt a court would look at an FBAR filed on June 30th (during normal hours) as untimely but who knows? I’ve seen too many strange things with the FBAR this month.

My advice is simple: File the FBAR asap–it at all possible by Saturday. You’re likely fine if you file it by 6 pm in your time zone on Monday, but the penalties are ridiculous on this. As an aside, I searched the FINCEN website, their FAQs on the FBAR, and the IRS website pages on the FBAR to see if I could find any confirmation of what my software company said. I couldn’t; unfortunately, that doesn’t mean it’s not true.

Online Gambling Addresses (Updated for 2014)

Sunday, June 22nd, 2014

Note: This list has been superseded by the 2015 list. You can find it here.

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

Note: This list is presented for informational purposes only. It is believed accurate as of June 22, 2014. However, I do not take responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

The list is in the cut text below.

If anyone has additions to the list feel free to email them to me.

Just File the FBAR

Wednesday, June 18th, 2014

Several of our clients have asked, “The decision on poker accounts being ‘banks’ is nonsensical. Do I really have to file an FBAR for those accounts?”

I am in general agreement with the individuals questioning the ruling. Banks and financial institutions generally offer investments, credit cards, loans, checking accounts, securities, and similar products. An online gambling site does take client’s money–but solely so that the client can gamble.

The United States has, for various laws, lumped casinos in with banks. For example, casinos fall under the same currency transaction reporting rules as banks. If you take $20,000 into your local casino and deposit it at the casino cage, a Currency Transaction Report is supposed to be issued. Casinos have to issue Suspicious Activity Reports.

If you go back to 2009, the FBAR was required for online gambling accounts. (That was the advice given to us from the IRS FBAR group.) In 2011, when new regulations came into play, the IRS no longer said that. The new regulations appeared to make an online gambling site not a reportable foreign financial account.

However, a federal judge disagreed.

Section 5312(a)(2) lists 26 different types of entities that may qualify as a “financial institution.” Based on the breadth of the definition, our court of appeals has held that “the term ‘financial institution’ is to be given a broad definition.” United States v. Dela Espriella, 781 F.2d 1432, 1436 (9th Cir. 1986). The government claims that FirePay, PokerStars, and PartyPoker are all financial institutions because they function as “commercial bank[s].” Section 5312(a)(2)(B). The Fourth Circuit in Clines found that “[b]y holding funds for third parties and disbursing them at their direction, [the organization at issue] functioned as a bank [under Section 5314].” Clines, 958 F.2d at 582 (emphasis added).

It may be that this decision will be reversed. It’s possible another court would come to a very different conclusion. But the laws on the FBAR are draconian, including willful penalties that are a minimum $100,000 fine. My thinking is simple: I’d rather be safe than sorry. Thus, my strong advice is, “Just file the FBAR.”

We sent out a special newsletter to our clients on this issue. Here’s what we wrote:

The FBAR is due June 30th and there are no extensions. There are significant penalties (including possible imprisonment) for FBAR mistakes.

The general rule on whether you have to file an FBAR is if you have $10,000 or more aggregate in one or more foreign financial accounts at any time during the year you must file an FBAR. If your aggregate balance remained under $10,000, you will not have an FBAR filing requirement.

Even if you don’t have an FBAR filing requirement you must still disclose your foreign financial accounts on your tax return. At the bottom of Schedule B are a few questions which include, “At any time during 2013, did you have a financial interest in or signature authority over a financial account, (such as a bank account, securities account, or brokerage account) located in a foreign country?” This question must be answered yes if you have a non-US based online gambling account.

There are two choices in filing an FBAR. We can file it for you (we would need you to complete and return Form 114a; if you need us to send you this form, let either Aaron or me know) or you can file it yourself at the BSA efile system.

Here are answers to some questions relating to this issue:

1. I had $6,000 maximum in my PokerStars account. I cashed it out and moved that same $6,000 into my foreign bank account. Do I need to file an FBAR? No. You never reached $10,000 aggregate in your foreign financial accounts.

2. I already filed my FBAR for 2013 but I have online gambling accounts that must be reported. What do I do? You will need to file an amended FBAR.

3. My tax return has already been filed; I did not note any foreign financial accounts on Schedule B. Will I need to amend that return? Yes.

4. Do online gambling accounts count for Form 8938 on the tax return? (Form 8938 is similar to the FBAR and reports certain foreign financial accounts.) Yes

5. Do I need to go back for prior years and file amended FBARs and tax returns? This is unclear at the present time, but the answer is probably yes. The statute of limitations on FBARs is six years from the due date, so 2009-2013 are open (2008 will be beyond the statute of limitations on July 1, 2014). However, gambling accounts were considered foreign financial accounts for 2009, so this impacts solely 2010-2012 for FBAR purposes. For tax returns, only 2011 and 2012 are open (assuming timely filing). Note also that the first year for Form 8938 was 2012.

I and other practitioners have asked the IRS and FINCEN for more information regarding this. I do expect to obtain a response regarding this within a couple of weeks. I will be updating this issue on my tax blog ( when I have more information.

6. My only online gambling accounts are in Nevada and New Jersey with the regulated sites in those states. Do I need to file an FBAR? No. Those accounts are not considered foreign financial accounts.

7. My online gambling accounts are with current US-facing sites; their legality is questionable. Must I report my accounts on an FBAR? Yes, as long as you have $10,000 or more aggregate in one or more such accounts.

8. Can I access my PokerStars and Full Tilt Poker accounts while in the United States? Yes, you can. PokerStars sent us instructions on how to do this:

Your deposit, cashout, transfer and playing transaction history is now available for request directly from the PokerStars software. To request this information from the PokerStars Lobby screen, select:
‘Requests’ -> ‘Playing History Audit’
From the pop-up window that appears, you can select a date range to request the specific information required. You will also need to select a password for the file. You may choose any password you wish; however, we do not recommend using the same password as for your PokerStars account. If you wish to view your FPP/VPP information, please ensure the relevant box is checked.
Finally, you will need to select the output format. The options available are Excel (97-2003), HTML and a text file. Then click on OK to submit the request. You will be prompted to enter your PokerStars password to confirm the request. An email with further instructions will be sent to your registered email address.
If the file provided will not open, it indicates you have an older compression program that does not support the encryption used on the file. To resolve this and open the file, you will need to update your compression program or download a new compression program. We recommend using WinZip 11 (or newer) or 7-zip which will allow you to open the file. You can access these programs from the following links:
WinZip – (Choose ‘Download’ > ‘Get WinZip Free’)
7-zip –

I will be posting a list of online gambling addresses next week.

More on the Hom Decision

Monday, June 9th, 2014

Jack Townsend of the Federal Tax Crimes Blog has a post on United States v. Hom today. In his post, he notes that Mr. Hom represented himself. Indeed, the court is still looking for a pro bono counsel to represent Mr. Hom:

Defendant John Hom is not indigent and therefore does not qualify for appointment of pro bono counsel with the Court’s federal pro bono project. This tax action, however, involves novel questions of law regarding the interpretation of the Bank Secrecy Act and related regulations. Accordingly, the Court seeks counsel to volunteer to represent defendant on a pro bono basis for the remainder of this action. Pro bono counsel will be allowed to re-brief the pending summary judgment motion, which is currently held under submission. In addition, a case management schedule has not yet been set.

If any counsel is willing to volunteer to represent defendant, please email the undersigned judge’s courtroom deputy, Dawn Toland, at by JUNE 12, 2014.

While Mr. Townsend notes that the Court applied the duck test, I remain unconvinced that the Court got this right. It did if you had to decide that all three foreign accounts in this case were foreign financial accounts or none were; however, if the Court could look at each individually the Court likely would have come to a different conclusion.

In any case, as of today we’re stuck with this decision. And no, I haven’t heard from the FBAR group at the IRS yet.

Back to the Past: Poker Sites and FBARs. Poker Sites Are Again Reportable Foreign Financial Accounts

Thursday, June 5th, 2014

Back in the past, I asked the FBAR group at the IRS whether or not poker sites needed to be reported. In January 2009, they told me they did have to be reported. In prior years, the FBAR group said they did not have to. Thus, FBARs (then, Form TD F 90-22.1) were sent to FINCEN with poker accounts.

Come early 2011, FINCEN issued new regulations. These regulations made it clear at the time that poker accounts would no longer be considered reportable foreign financial accounts. However, yesterday a judge disagreed.

In United States v. Hom defendant Hom was charged with violating the Bank Secrecy Act for not reporting three accounts at FirePay, PokerStars, and Party Poker.

In the case, the Court decided:

Section 5312(a)(2) lists 26 different types of entities that may qualify as a “financial institution.” Based on the breadth of the definition, our court of appeals has held that “the term ‘financial institution’ is to be given a broad definition.” United States v. Dela Espriella, 781 F.2d 1432, 1436 (9th Cir. 1986). The government claims that FirePay, PokerStars, and PartyPoker are all financial institutions because they function as “commercial bank[s].” Section 5312(a)(2)(B). The Fourth Circuit in Clines found that “[b]y holding funds for third parties and disbursing them at their direction, [the organization at issue] functioned as a bank [under Section 5314].” Clines, 958 F.2d at 582 (emphasis added).

The biggest problem that I see for the defendant is that he had an account at FirePay. FirePay was a United Kingdom-based third-party payment processor similar to Skrill (Moneybookers) and Neteller. FirePay was absolutely a foreign financial account: It issued credit cards, debit cards, and had functions that almost anyone would say are akin to what banks offer.

In this case, the defendant argued that all of his accounts were not foreign financial institutions. He did not separate out the poker sites from the third-party payment processor in his arguments. He was almost certainly doomed on the FirePay account. Still, the Court ruled that PokerStars and Party Poker were banks. What does this mean for individuals who have poker accounts?

1. As of now, plan on reporting these accounts for both FBAR (Form 114) and Form 8938 purposes. When in doubt, report is a good rule of thumb.

2. Do poker accounts need to be reported? As of now, yes.

3. Do prior year FBARs need to be filed and/or amended for poker accounts? This is unclear, but the answer is probably so. The statute of limitations on FBARs is six years from the due date. Given the FBAR is due on June 30th of the year following, the statute is about to run out on 2008. (In any case, for calendar years 2008 and 2009 poker sites were considered foreign financial accounts.) However, I would think that 2010 and 2011 FBARs would need to be filed or amended.

4. Do tax returns need to be amended to note the presence of foreign financial accounts if you have an FBAR filing requirement for poker accounts? Almost certainly they do for any tax years open (2011 – 2013).

5. Also note that tax returns may need to be amended just by the presence of a foreign financial account. The IRS now asks on Schedule B whether you have a foreign financial account. Anyone with money at PokerStars in 2011 would need to answer yes.

I have sent questions to the IRS on this issue. (The FBAR group at the IRS is one of the few groups that accepts emails.) I have asked whether they want such accounts to be reported; whether back FBARs/amended FBARs should be filed; and whether tax returns should be amended. I will both post on the response I receive and update this post when I do receive the response.

A few other things to note about the decision. This is not a precedential decision; it is a decision of a District Court Judge. A Court of Appeals has not ruled on this. The defendant lumped an account that was clearly a foreign financial account with accounts that might not be. The Court looked at them in toto rather than individually. I suspect that if Mr. Hom appeals this decision, he will also argue that the poker accounts should be looked at differently than the third-party payment processor.

I am troubled by the Department of Justice looking at poker accounts as a foreign financial account. Still, there are some other issues regarding this decision that are unclear. FBAR charges are rarely brought in isolation. I don’t know what caused these charges to be brought.

In the end, this is not a good decision for poker players or tax accountants who service the poker world. Lots more useless paper will end up being generated as a result of this decision. (Well, electrons as FBARs now must be electronically filed.) Still, the old adage of better safe than sorry holds. As of today, reporting poker sites as foreign financial accounts is back on.

The FBAR Has Changed

Thursday, October 3rd, 2013

Tax professionals can now file FBARs (Form TD F 90-22.1) for clients. We have to have our client sign Form 114a authorizing the preparer to efile the FBAR. Today, when I went to file an FBAR for a client, I was greeted with a very colorful new FBAR. The form also has a new number: FINCEN Form 114.

The form has seven pages (groan). The data-entry portions are the same; however, there is now a pull-down menu on page 1 for the reason for late filing (where applicable):

Page 1 of New FBAR

Not shown on the pull-down menu is “Other Explanation.” You can then enter a lengthy explanation if need be.

There’s now also a place for tax professionals to enter their information when we file the form for clients; this is on page 7 of the form:

Page 7 of New FBAR

Unfortunately, many of the entry boxes uses pull-downs which don’t allow you to just type, say, “NV” for Nevada. Instead, you type an N (or an O) and then move the slider bar down or up to select Nevada. This is definitely annoying when you enter countries for foreign financial accounts.

FINCEN has said that they are working with the IRS and eventually we’ll be able to file FBARs through tax software. I’m likely going to take the over on anyone’s bets for when that will happen….