US citizens, residents, or persons doing business in the United States, who maintain an account with a foreign financial entity must keep records and file reports regarding that account with the Treasury Department. The information must be submitted on Form TD F 90-22.1 (the Form) annually, on or before June 30, of the succeeding year.
Failure to file the Form, prior to the date of enactment of the American Jobs Creation Act in 2004, could result in penalties, only if, the failure to file was willful. If willful, the civil penalty for failure to file was the amount of the transaction or the value of the account up to $100,000; the minimum penalty being $25,000. Criminal penalties, also, exist for failure to file.
The American Jobs Creation Act, in order to increase voluntary compliance, institutes a civil penalty (this is of greater consequence than IRS penalties) for failure to file, regardless of whether the failure was willful. The penalty for a non willful failure to file may be up to $10,000 per account and may be raised for reasonable cause. The new law, also, increases the penalties for willful failure to file to the greater of $100,000 or 50% of the amount of the transaction or account balance, whichever is greater.
The instructions for the Form provide that it must be filed by each US person, who has a financial interest or signature authority, or other authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate balance for the foreign financial accounts exceeds $10,000 at any time during the calendar year reported on. Exceptions exist for employees of banks and officers or employees of certain publicly listed companies. A US person is defined as a citizen of the US, a domestic partnership, a domestic corporation or a domestic trust. Foreign financial accounts which must be reported include any bank, securities, securities derivatives or other financial instruments accounts outside the US, Guam, Puerto Rico and the Virgin Islands.
Individuals and the university are asked on Form 1040 and Form 990T, respectively whether they have an interest in or signature authority over a foreign financial account. Annually, UW indicates that it has an interest in or signature authority over such accounts on Form 990T and has filed the Form. There has been no effort to inform individuals who exercise the signature authority on behalf of UW that they, too, are required to file the Form annually. It is likely that the questions regarding foreign accounts that appear on Schedule B of Form 1040 are being answered incorrectly by individuals with signature authority over UW accounts because they are thinking of their own personal financial accounts when completing their Form 1040's.
The failure to file the Form by individuals with signature authority over UW foreign financial accounts, prior to the change in the law should not subject them to penalties because such failures to file would, have not been "willful". However, with respect to filings for 2005 that are due by June 30, 2006, the penalties may be imposed for the mere failure to file the Form.
With respect to individuals whom have already filed Form 1040, the most important part of the compliance seems to be with respect to the Form and not with respect to the Form 1040 questions which may have been answered incorrectly. The Form must be filed, required, regardless of whether an individual's Form 1040 has been already filed. If individuals have concerns regarding, incorrect answers to the questions on Schedule B of a Form 1040 previously filed they should consult their tax preparer.
