Americans with foreign bank accounts must learn about the legal implications and dangers of FBAR. The Foreign Bank Account Report (FBAR) required to be filed by all American citizens and Green Card holders with foreign bank accounts and other financial interests (Form 90-22.1) with a cumulative value exceeding $10,000 during the year 2010 must be received at the Office of the US Department of the Treasury, PO Box 32621, Detroit, MI 48232-0621 by June 30, 2011.When such persons reside abroad they generally open foreign bank accounts to manage their personal affairs, and may also hold other foreign financial assets such as pension funds. It is imperative that the form be filed on time, as there is no grace period for late filing and the penalties for misfiling or non-filing are severe. The FBAR filing requirement applies not only to accounts in which one has a direct financial interest, but also to accounts over which one has signature authority but no financial interest.The FBAR programme is now administered by the IRS, even though the form is still sent separately to the Department of the Treasury. Commissioner Schulman has made the witch hunt for US tax evaders hiding assets in foreign bank accounts a top priority. His aggressive tactics and the widespread ignorance of the FBAR filing requirement by Americans overseas, who while dutifully filing their 1040 may not have filed the FBAR, have led to the perfect storm.Although the filing requirement has existed since the 1970s, it was largely ignored by Treasury and tax filers alike, and many tax preparers were not aware of the requirement until Congress increased the penalties in 2003 and the IRS initiated heavy-handed penalties and a publicity campaign focusing on foreign accounts. Americans overseas must understand that the stakes are high.As submission of the FBAR is a critical issue for Americans residing overseas, ACA feels it is imperative to alert Americans abroad about the arbitrary and perilous nature of the FBAR legislation and its administration under the IRS.For this reason, the Hale Sheppard articles reproduced here should be required reading for Americans with accounts abroad.ACA has received abundant testimony from US citizens residing abroad who were unaware of the FBAR reporting obligation and chose to participate in the IRS “voluntary disclosure” programme, aiming to get their matters in order. They have been shocked to find the IRS automatically imposing a rigid 20 percent penalty on their total assets overseas for not filing the FBAR, even though they had filed their 1040 and had declared all income and paid their taxes.The IRS has initiated a second voluntary disclosure programme with automatic penalties of 25 percent on total overseas assets. The IRS considers this penalty treatment under the voluntary disclosure programmes as “favourable”, since legislation relating to the FBAR allows the IRS to levy penalties for non-reporting of up to $100,000 or 50 percent of the overseas assets, whichever is larger.The IRS aims to get out a clear message that everyone with foreign financial assets must submit the FBAR. Their extreme penalty regime, however, is such that the Americans abroad who have not previously filed and want to correct their situation are often obliged to commit financial suicide.The situation for Americans abroad is entirely different from that of US citizens residing in the United States. Citizens abroad need foreign bank accounts to receive salary and pay everyday bills, and the overwhelming majority has not opened foreign bank accounts to avoid paying taxes to the United States. In most cases they hold the vast majority of their total assets overseas. Americans residing in the United States who are deliberately not reporting the FBAR to avoid paying U.S. taxes on assets held overseas will most likely have only part of their total assets abroad. The penalties based on foreign owned assets are the same for both groups. However, imposing 50% of foreign assets is a ruinous penalty for the American abroad, as this may correspond to 50 percent of all assets held. In contrast, an American resident in the United States who might have hidden 20 percent of his total assets in foreign bank accounts will have a penalty of 50 percent applied to 20 percent of total assets, or just 10 percent of total assets.The law was intended to focus on US-domiciled tax evaders, but it seriously discriminates against Americans residing overseas, as it does not take into consideration the different context which distinguishes them from US tax evaders residing in the United States. Furthermore, constitutionality of the penalties in place today is highly doubtful under the Eighth Amendment of the US Constitution, as they clearly represent excessive fines that are disproportionate to the “crime” committed, ie, not filing an FBAR report.Hale Sheppard is a shareholder in the Atlanta office of Chamberlain, Hrdlicka, White, Williams & Martin, specialising in tax audits, tax appeals, tax litigation, tax collection issues and criminal tax investigations. He is also a member of the ACA Professional Tax Advisory Council. He took an early interest in the changes in the FBAR legislation and the consequences for tax filers. He has in-depth professional experience on this topic. ACA thanks Hale for his invaluable contribution in bringing the complex FBAR issues to light and for authorising ACA to reproduce five articles that he has written on the FBAR, which are available on the ACA website at www.aca.ch.Taken together, these five articles provide the full history of FBAR from its origins to the latest court cases that influence the legal framework and administration of FBAR by the IRS. It is recommended to read the articles in chronological order of their publication, as the legal complications and subtleties develop over time. But it you want to get quickly scared and have your blood pressure rise, read the most recent one first. You will then certainly be motivated to read the others.An American citizen residing abroad who has an issue with FBAR filing should obtain professional advice from a tax preparer or tax lawyer. These articles provide background and perspective, but cannot be considered as legal advice, which always requires specific knowledge of the individual circumstances of the filer.We would like to remind all readers that ACA has a portal on its website to which you can submit your testimony on any issues you have experienced with FBAR reporting, tax reporting or difficulties in maintaining bank accounts in the United States or abroad due to US legislation the Patriot Act and the Foreign Account Tax Compliance Act (FATCA). Utmost confidentiality is guaranteed.You can choose your level of desired anonymity in the submission. Go to the ACA website page for a direct link to this portal. These testimonies are vital to ACA in our efforts to inform Congress of the dire hardships generated by the FBAR legislation and to encourage appropriate modifications to halt the application of egregious, life-changing penalties to US citizens residing abroad who have never intended to engage in tax evasion.Martha Myron CPA CFP TEP JP, Director of Tax, Trust and Estate Planning, Patterson Partners Ltd, is a member of American Citizens Abroad (ACA) Tax Advisory Council.