Filing a Report of Foreign Bank and Financial Accounts (FBAR) is mandatory for some Americans. Noncompliance can lead to lofty financial penalties and other consequences, so you should learn whether or not you need to file an FBAR.
If you own a foreign bank account that exceeds $10,000, you will likely have to file an FBAR. This annual report is required by the Financial Crimes Enforcement Network (FinCEN) and is due by Tax Day for any year your foreign bank accounts exceed the threshold. Filers must use FinCEN Form 114 to file an FBAR. Filing is generally done online, although paper filing is possible if you wish to apply for an exemption. You can face serious financial penalties if you don’t file an FBAR when required. Instead of taking that risk, turn to an experienced tax CPA for help.
Our tax professionals are here to make FBAR filing easier for Americans. To learn more about how the tax accountants at US Tax Help can make tax season simpler for you, call today at (541) 362-9127.
Do You Have to File the FBAR?
Filing a Report of Foreign Bank and Financial Accounts is crucial for Americans with bank accounts situated overseas. Compliance with FBAR reporting requirements is of the utmost importance, so it’s vital that you understand whether or not you need to file such a report with the Financial Crimes Enforcement Network.
Any American who owns a foreign bank account that has, at any point during the tax year, exceeded $10,000 must file an FBAR. Even if your account is valued at less than $10,000 when you file the FBAR, you must still file if the account was worth this much money at any point in the preceding tax year. What if you have multiple accounts outside the United States? In such a case, you are required to file an FBAR if the aggregate value of all those accounts is worth at least $10,000 at any time during the tax year. It does not matter if each individual account is worth less than this amount, their aggregate value is what is important. The following parties are responsible for making this report if they own foreign bank accounts whose contents exceed the threshold:
- Citizens
- Residents
- Corporations
- Partnerships
- Limited liability companies
- Trusts
- Estates
Generally speaking, FBAR reporting requirements affect American expatriates and resident aliens the most. As long as you retain your American citizenship, you must file a Report of Foreign Bank and Financial Accounts with FinCEN if you have over $10,000 in a foreign bank account.
Why The Government Wants People to File an FBAR
Taxes, finances, and reporting just about anything to the IRS and other federal governmental agencies are nothing short of complicated. You might be wondering why filing an FBAR is even necessary. The answer to your questions can be summed up under the Bank Secrecy Act.
There are numerous requirements under this act regarding financial interests, accounts, and holdings, both domestic and foreign. The Act is designed to prevent various types of financial crimes and fraud, particularly money laundering. In the past, people would often store ill-gotten funds in foreign accounts to hide them from the IRS. Even if the money did not come from criminal activity or fraud, people could use foreign banks to hide their money to avoid taxation.
Essentially, FBARs are meant to help the U.S. government keep track of Americans with foreign financial accounts. While many use foreign accounts for legitimate business and personal reasons, others use them to circumvent American laws regarding money and finances. FBARs make it harder for people to hide their assets in offshore accounts.
This is why filing your FBAR correctly and on time is so crucial. If you do not file or file late, the United States government may become suspicious. You might not only face civil penalties like fines and late fees, but you might also be under criminal investigation.
What Accounts Must Be Included in Your FBAR?
Under 31 C.F.R. § 1010.350(c), numerous accounts, assets, and holdings must be included in a Report of Foreign Bank and Financial Accounts. This may include typical bank accounts in addition to more complex financial holdings and interests. These accounts may be personal accounts or part of a larger business. Accounts might also be held by more than one person, and each must file an FBAR. However, there are a few exceptions worth discussing with a tax accountant or attorney.
Reportable Accounts
If you have any financial account or interest held within a foreign bank or financial institution, there is a good chance that it must be included in an FBAR when you file your taxes. This includes various bank accounts. Savings accounts, checking accounts, demand deposit accounts, and any other account maintained by a person engaged in the banking business must be reported. If you are unsure whether your foreign accounts meet these criteria, ask a tax accountant or talk to a lawyer.
You must also report accounts that are considered securities accounts. This includes accounts with a person or institution engaged in the business of selling, buying, trading, or holding stock and other securities. Remember, this might not necessarily involve liquid money. You might have stock in a foreign bank that is not realized yet but still must be reported.
Various other non-specific accounts should also be included in your FBAR. For example, you must report any foreign account with a person in the business of accepting deposits as a financial institution or agency. You must report accounts that are annuities or insurance policies with a cash value, accounts with someone who acts or works as a dealer or broker for futures or options transactions in a commodity subject to the rules of a commodity exchange or association, and accounts with mutual funds or similar pooled funds.
Consider whether you have any other types of investment funds with foreign banks or institutions. Check with a tax accountant to determine whether they must be included in your FBAR. Even if you are sure of your financial holdings and what must be reported, it is a good idea to talk to someone about it anyway, just to be certain.
Exceptions
Accounts maintained by an agency of the United States, an individual state or a political subdivision of a state, an Indian Tribe, or a wholly owned instrumentality or agency of any of these entities do not have to be reported. This exception likely would not apply to individual, private account holders, but it never hurts to ask a tax accountant.
Other accounts under the authority of governmental entities or intergovernmental compacts that exercise governmental authority are also excluded from FBAR filings. Similarly, an account of an international financial institution of which the U.S. is a member does not have to be reported on the FBAR.
If you are a member of the armed forces, you might have accounts with U.S. military banking facilities. These also do not have to be included in your FBAR.
Nostro accounts, or accounts held by domestic banks in foreign countries, often for the purpose of communicating with other banks, do not need to be included in your FBAR. This likely does not apply to individual taxpayers, but talking to a tax accountant or lawyer about it is not a bad idea.
What Forms Do You Use to File the FBAR?
A Report of Foreign Bank and Financial Accounts is not filed with the IRS as some may initially expect. Instead, an FBAR is filed with the Financial Crimes Enforcement Network (FinCEN), meaning those responsible for completing this report may have to use unfamiliar forms and reporting processes.
Like the IRS, the Financial Crimes Enforcement Network is part of the Department of Treasury. This bureau monitors American money overseas to reduce instances of money laundering and other illegal activity. That is why, when filing an FBAR, you’ll need to use forms from FinCEN.
Depending on your situation, you may use FinCEN Form 114 or Form 114a to file an FBAR. Form 114 is for single FBAR filers, while Form 114a is for those filing jointly with a spouse. Your tax accountant can help you understand whether or not you can file an FBAR jointly with your spouse, which is only possible under certain circumstances.
Properly completing Form 114 requires FBAR filers to have specific information regarding their foreign bank accounts on hand. The following is just some of the information you must provide on FinCEN Form 114:
- Name on foreign bank account
- Bank account number
- Name of foreign bank
- Address of foreign bank
- Type of foreign bank account
Filers may also have to provide the maximum value of all foreign bank accounts within the past year. Completing FinCEN Form 114 in its entirety is crucial if you have an FBAR liability for the past tax year. If you’re having difficulty understanding Form 114 and how to complete it, reach out to an experienced tax accountant for help.
When is the FBAR Due?
Knowing that you may have to file a Report of Foreign Bank and Financial Accounts is not enough. Filers must also learn when they have to submit a completed Form 114 to the Financial Crimes Enforcement Network.
If your foreign bank accounts exceed $10,000 in aggregate value, you’ll have to file an FBAR. Generally speaking, these reports are due on Tax Day. You’ll qualify for an automatic six-month extension if you don’t submit an FBAR by the due date. You won’t have to file for an extension, which can be a relief for filers.
Although the FBAR is due on Tax Day, you can’t submit it alongside your annual tax return and other IRS forms. Americans with an FBAR liability must submit their completed paperwork directly to the Financial Crimes Enforcement Network. Currently, FinCEN requires filers to do this online by Tax Day. If you feel more comfortable filing a paper FBAR, your tax accountant can help you request an exemption from e-filing.
What Happens if You Don’t File the FBAR?
The Financial Crimes Enforcement Network takes the FBAR filing seriously. If you’re required to file an FBAR and fail to, you can face serious financial penalties that could potentially exceed the funds you have in your foreign bank account.
Those required to file an FBAR and fail to are likely to face steep financial penalties. For each year you don’t file an FBAR, you can incur a penalty of $100,000 or 50% of the contents of your foreign accounts, whichever amount is greater. If you continue not to file an FBAR and fail to pay financial penalties, you can even face time in prison.
Because of the Foreign Account Tax Compliance Act, foreign financial institutions must report bank accounts owned by American persons or companies to the IRS. That means that the IRS and FinCEN likely know whether or not you have to file an FBAR before you do. So, forgetting or ignoring FBAR reporting requirements won’t do you any good. Instead of risking serious penalties for failure to report your foreign bank accounts, enlist help from a tax accountant. That way, you can file an FBAR on time without worrying about any consequences.
What if More Than One Person Holds a Foreign Account?
Your situation might be a bit more complex if more than one person has control or authority over foreign accounts or assets. This is not uncommon when accounts are shared by married couples or business partners. The question is, do you have to file one FBAR per account or does each person who holds the account have to file an FBAR?
The answer is that each person must file an FBAR. If more than one person jointly holds a foreign account that meets the reporting requirements, all account holders must file an FBAR. This is likely to come up in cases of married couples who have joint accounts with foreign banking institutions. It might also come up in cases of business owners who jointly hold foreign accounts with one or several other business partners. If this sounds like you, talk about your accounts with an experienced tax accountant.
We Can Help You File the FBAR Today
If you need assistance filing a Report of Foreign Bank and Financial Accounts, our tax CPAs are here to help. To learn more about the tax accountants at US Tax Help, call today at (541) 362-9127.