Who is required to file FOREIGN BANK & FINANCIAL ACCOUNT Reports (FBAR)s?

Preparing FBARs | Report of Foreign Bank & Financial Accounts

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR). 

Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,00 or 50% of the balance in the account at the time of the violation, for each violation. 

Who Must File 

United States persons are required to file an FBAR if:

1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States, and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported. 

United States person includes U.S. citizens; U.s. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States. 

Criminal Charges May Be Brought

Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation. 

Exceptions to the Reporting Requirement

There are filing exceptions for the following United States persons or foreign financial accounts:

• Certain foreign financial accounts jointly owned by spouses. 
• United States persons included in a consolidated FBAR. 
• Correspondent/Nostro accounts. 
• Foreign financial accounts owned by a governmental entity. 
• Foreign financial accounts owned by an international financial institution. 
• Owners and beneficiaries of U.S. IRAs. 
• Participants in and beneficiaries of tax-qualified retirement plans.
• Certain individuals with signature authority over, but no financial interest in, a foreign financial account. 
• Trust beneficiaries (but only if a U.S. person reports the account on a FBAR filed on behalf of the trust). 
• Foreign financial accounts maintained on a United States military banking facility. 

Reporting and Filing Information 

A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR. 

The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. The FBAR must be filed electronically through FinCEN's BSA E-Filing System. The FBAR is not filed with a federal tax return. When the IRS grants a filing extension for a taxpayer's income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR.  

U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938 

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is fied with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR.  The Form 8938 filing requirement is in addition to the FBAR filing requirement. 

Form 8938 must be filed by certain U.S. taxpayers living in the U.S. and holding foreign financial assets with an aggregate value exceeding $50,000 ($100,000 MFJ) on the last day of the tax year, or more than $75,000 ($150,000 MFJ) at any time during the year. 

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the 'Other' option. If unable to file electronically you may contact FinCEN's Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing. 

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted. 

Contact me (Nick) to see if you are required to file an FBAR or FinCen. 
 

Common Mistakes When Preparing an FBAR & FinCen

1. Failure to Understand Who Is Considered a United States Person

A common error is to not include U.S. tax residents, non-U.S. citizens who pass the green card test or substantial presence test as a U.S. person subject to the FBAR filing requirements. 

2. Not Understanding the Filing Requirements for Joint Accounts

Excluding joint accounts where the sole purpose of the ownership is for convenience. This is a common occurrence when elderly parents add their children to their account. 

3. Failure to Understand the FBAR Filing Threshold Requirements

Another common mistake is to mistakenly assume that a filing requirement is triggered only when the total aggregate balance exceeds $10,000 at year-end (December 31).  The filing requirement is based on the aggregate value at any time during the calendar year. 

4. Failure to Disclose Business Accounts

Business accounts for which you have a greater than 50% ownership of the total voting power or if you have a signature authority need to be reported, are of neglected often by taxpayers who fail to disclose these accounts.

5. Failure to Disclose All Types of Foreign Financial Accounts  

It is commonly mistaken that only regular checking and savings accounts requre disclosure and not retirement accounts, investments accounts, life insurance accounts with an account value, etc. 

Areas of Practice