Have questions about the Foreign Bank Account Report? Here are some common questions and their answers.
What is the Foreign Bank Account Report?
This report has several different names. Referred to as the “Foreign Bank Account Report,” or “FBAR” for short, the FBAR is officially designated as FinCEN Form 114 (“Report of Foreign Bank and Financial Accounts”). Formerly, it was officially designated as Treasury Department Form 90-22.1.
The FBAR is a reporting requirement imposed by the US Treasury Department pursuant to the Bank Secrecy Act. So, technically the FBAR is not a tax reporting requirement, but the FBAR is actually administered by the IRS.
Who must file the FBAR?
You’re required to file the FBAR for a calendar year if you meet both of the following requirements:
- you’re a US person and
- 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.
That was a mouthful-let’s break down each part:
Who is a “US person” for FBAR purposes?
You’re a US person for FBAR purposes if you are any of the following:
- a US citizen,
- a US resident,
- an entity (such as a corporation, partnership, or limited liability company) that is created or organized in the United States or under the laws of the United States, or
- a trust or estate formed under the laws of the United States.
What does it mean to have a “financial interest” in a financial account?
You have a financial interest in a financial account where you’re the owner of record or holder of legal title, regardless of whether the financial account is maintained for your benefit or for the benefit of another person. You also have a financial interest in a financial account that is owned by either (i) an entity in which you hold more than a 50% ownership interest or (ii) a trust for which you are a grantor or a greater-than-50% beneficiary.
What is a “financial account” for FBAR purposes?
A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions). Retirement savings accounts (like an Australian superannuation fund) and certain types of government retiree benefit programs (like the program run by the South Korean National Pension Service) can also be treated as financial accounts.
What does it mean to have “signature authority” over a financial account?
You have signature authority over an account when you (alone or in conjunction with another individual) have the authority to control the disposition of assets held in the account by direct communication to the financial institution that maintains the account. There are certain exceptions for employees at banks and other unusual situations.
How do I determine the aggregate maximum account value of my non-US financial accounts?
First, determine the highest amount of currency in (or value of) each account for the relevant year. This is the high-water mark of the account—the very most money (or value of assets) that was ever in the account at any point during the year, even if just for a second. It doesn’t matter how much money ran through the account during the year; we only need the number representing the highest amount of money in the account at any one time during the year. If you cannot determine the exact maximum account value, you can use a reasonable approximation based on the best available records (which could simply be your own recollection if that is the best information you have). You can also choose to report that the maximum account value is unknown.
Next, if necessary, convert those amounts to US dollars using the Treasury Reporting Rate of Exchange on the last day of the calendar year. Finally, add together these US dollar amounts. You’re required to file an FBAR if this final amount exceeds $10,000.
How do I report an account I hold through a non-US company?
If you own more than 50% of the stock of the non-US company, then you are treated as simply owning the account for FBAR purposes. So, it’s reported as an owned account.
If you don’t own more than 50%, and you have signature authority on the account, then the account would be reported only as a signature authority account.
Does filing the FBAR have any effect on how much US tax I pay?
No—the FBAR is simply a disclosure form. Filing an FBAR does not increase the amount of US tax you’re required to pay (or have any other effect on your US tax situation).
When is my FBAR due?
Your FBAR with respect to each calendar year must be filed on or before the due date of your tax return for such calendar year, extensions included. So, US residents must file the FBAR before April 15; expats have until June 15; and either can extend their return and FBAR deadline to October 15. Before 2016, the FBAR was due June 30 of the following calendar year with no extensions available.
Can I just file my FBAR with my US tax return?
No, unfortunately it doesn’t work that way. The FBAR is filed electronically using a completely separate e-filing system than that used for US tax returns. However, note that some tax software packages allow you to file the FBAR along with your return, so functionally you may be able to get it all done in one place.
What are the potential penalties for failing to file the FBAR?
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. Non-willful violations that the IRS determines were not due to reasonable cause can be subject to a $10,000 penalty per violation. Additionally, failing to file an FBAR subjects a person to a potential prison term of up to ten years and criminal monetary penalties of up to $500,000.
If you have failed to timely file an FBAR, please see the amnesty program question below. You very likely can get all caught up on your FBARs without having to worry about any of these penalties.
What information do I need to file the FBAR?
You only need the following information for each account:
- the account number,
- the name and address of the non-U.S. financial institution where the account is maintained, and
- the maximum value of the account during the relevant year.
You’ll also need basic identifying information about the joint owner (for accounts held jointly) and the owner of the account (for accounts over which you have signature authority).
Can the information in my FBAR be disclosed to anyone?
The Treasury Department may disclose the information contained in a filed FBAR with other government officials only under certain prescribed circumstances (detailed below) but may not disclose such information to private citizens or to the public in general.
The FBAR itself states as follows:
“The information collected may be provided to those officers and employees of any constituent unit of the Department of the Treasury who have a need for the records in the performance of their duties. The records may be referred to any other department or agency of the United States upon the request of the head of such department or agency for use in a criminal, tax, or regulatory investigation or proceeding. The information collected may also be provided to appropriate state, local, and foreign law enforcement and regulatory personnel in the performance of their official duties.”
I was required to file an FBAR for a past year but did not do so—what should I do?
The IRS has several amnesty programs you can use to get caught up on past filings and avoid the hefty penalties described above. The first step is to determine which amnesty program would work best for your specific situation. Get in touch and we can discuss.
If I’m required to file the FBAR, what other disclosure requirements may also apply to me?
US persons who are required to file the FBAR are very often required to file other non-US asset disclosure forms as well. These other forms include IRS Form 3520 to report ownership of a non-US trust, IRS Form 5471/8865/8858 to report ownership of a non-US corporation/partnership/disregarded entity, and IRS Form 8938 to report ownership of substantial non-US assets.
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