Expats: Beware the FBAR Dragnet

The FBAR’s shotgun approach catches not only tax dodgers but also ordinary expats who use foreign accounts to do ordinary things like pay living expenses in the local currency. This article discusses the FBAR filing requirement so you can determine if you’ve been caught in the FBAR dragnet.

Written by Stewart Patton

The purpose of the Foreign Bank Account Report (the “FBAR”) seems clear enough—to help the IRS track down US citizens who hide assets offshore. Unfortunately, in addition to catching Americans who use offshore accounts to evade tax, the FBAR’s shotgun approach also catches ordinary expats who use foreign accounts to do things like pay living expenses in the local currency. This article discusses the FBAR filing requirement so you can determine if you’ve been caught in the FBAR dragnet.

FBAR Basics

You’re required to file the FBAR for a calendar year if (i) you’re a US person and (ii) during such calendar year, you had a financial interest in or signature authority over one or more non-US financial accounts with an aggregate maximum account value in excess of $10,000.

Just about every word in the preceding paragraph is a defined term for FBAR purposes. Let’s break down this jargon a bit:

Penalties

The penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. So, if you willfully fail to file the FBAR for 3 years, the IRS could impose a penalty of 150% of the account balance (or $100,000, if such amount is greater). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation. Additionally, failing to file an FBAR subjects a person to possible criminal penalties, including a prison term of up to ten years and a fine of up to $500,000.

However, if you’ve failed to file one or more FBARs, you may qualify for an IRS amnesty programs. These programs allow you to get caught up and either pay a substantially reduced fine or avoid fines altogether.

Examples

Here are some examples of ordinary expats caught in the FBAR dragnet:

Take a minute to ask yourself—have I been caught in the FBAR dragnet?

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Stewart Patton

I'm Stewart Patton, US tax attorney and expat entrepreneur based in beautiful Belize. Read more about me here, or email me at [email protected] to discuss how I can help.

U.S. Tax Services, P.O Box 2651 Belize City, Belize • Belize tel: (+501) 629-6007 • U.S. VOIP: (312) 675-8571 • Email: [email protected]