Important New Development Regarding Reporting of Foreign Bank and Financial Accounts: What Tax-Exempt Organizations Need to Know

The Internal Revenue Service (IRS) has stepped up enforcement of foreign bank and financial account reporting obligations for all taxpayers, including tax-exempt organizations and their employees. As discussed below, the penalties for noncompliance can be particularly punitive, and the hurdle for the application of such penalties is low. With tax season approaching, the next few weeks are an excellent time to review compliance with these obligations because these reporting requirements require tax-exempt organizations and certain employees to "check the box" on Form 990 or Schedule B of their Form 1040 returns, as applicable, regarding the existence of and signature authority over such accounts.

The IRS recently posted a significantly revised version of Treasury Form 90-22.1, "Report of Foreign Bank and Financial Accounts" (commonly known as the FBAR). Penalties for failure to satisfy the FBAR reporting requirements are significant and range from criminal sanctions to civil penalties of up to 50% of the balance of an undeclared account per year. The requirements apply equally to organizations and individuals. Although there are some narrow exceptions to the FBAR filing requirements, they generally are not applicable to tax-exempt organizations.

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