Do Your Foreign Bank Accounts Trigger FBAR Filing Requirements?

When you live or conduct business abroad, you often need a foreign bank account to make and receive payments locally. Or maybe you live in a country that requires you to set up a private foreign pension.  Even when living in the US, you may have a foreign bank or financial account. Whichever type of foreign account you own (or can sign on), it may trigger a filing requirement in the US with the Dept. of the Treasury, known as FBAR filing.

FBAR stands for Foreign Bank Account Report. The actual form is the FinCen Form 114.

Once your foreign accounts reach a certain threshold in aggregate, you must file with the Treasury. Failure to come forward and report voluntarily can result in severe penalties if the accounts are discovered by the Treasury or the IRS.

Who needs to file an FBAR?

Foreign bank accounts don’t always need to be reported. If the combined value of your foreign financial accounts doesn’t exceed $10,000 at any time during the calendar year, you don’t have to file an FBAR.

However, if the aggregate value of all your foreign accounts exceeds the $10,000 threshold at any time during the calendar year, even for just one day, you meet the FBAR filing requirements and must report all of the accounts using the FBAR.

This includes bank accounts, investment accounts, pension accounts, certain life insurance schemes, and most other accounts held at financial institutions. Accounts not held at financial institutions are generally excluded, as is land that is held outright.

This not only includes accounts in your name, but any financial accounts abroad in which you may have a “financial interest in or signature authority over“.

What does that mean?

Signature authority but no financial interest

If the assets in the account are not yours and your name is not on the account, but you are authorized to access the account and make transactions i.e. check-signing authority, you have “signature authority with no financial interest”. This could be a corporate account at your place of employment or an account that belongs to a family member.

Financial interest

In a different scenario, you may have a financial interest without signature authority in a foreign account. That is the case if the assets in the account are yours even if the account is not in your name and you don’t have signature authority over it.

For example, if a family member or friend or a trust abroad maintains an account with your assets on your behalf and accesses the account only per your instructions, you have a financial interest. You have to report this account if you meet the FBAR reporting thresholds.

FBAR filing requirements cover all “US Persons.” This includes US citizens and US residents, as well as US entities. US entities include corporations, partnerships, LLCs, or trusts created under the laws of the US.

Furthermore, if you have specific foreign assets (financial assets, plus a few additional asset classes) that exceed certain IRS thresholds, there are additional filing requirements. You must report these assets to the IRS using form 8938 “Statement of Specified Foreign Financial Assets”. This is a separate filing that is not part of your FBAR report and thresholds for this requirement are much higher than FBAR filing thresholds. We will discuss this form and the filing thresholds in a different post.

How to file an FBAR

The FBAR is a requirement of the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). As a result, you do not file the FBAR with your tax return. Instead you must file it electronically using the BSA e-filing system. However, the IRS works in conjunction with FinCEN so it has access to FinCEN records, and references them when a taxpayer enrolls in certain IRS amnesty programs.

For each of your accounts, you will need the following information for your FBAR filing:

• Account number, name and address of the financial institution
• The maximum account value during the tax year, in local currency
• Currency exchange rate on the last day of the calendar year, to convert the local currency into USD
• If it is a joint account, the number of owners and principal joint owner’s information.

FBAR Filing Deadline for Expats

Up to 2015, the deadline for FBAR filing was June 15 of the following year. Now the due date is April 15, the same as for individual tax returns, however an automatic extension is granted until October 15. Most expats opt to file their FBAR at the same time as their federal tax return, especially as some have to provide similar information on FATCA Form 8938.

What is the difference between FATCA Form 8938 and FBAR?

 FATCA Form 8938 is an IRS form used to report foreign financial assets, such as investments and positive pension and bank balances held at offshore financial institutions. While there is overlap between the information provided on Form 8938 and FBAR, FBAR is filed to FinCEN for reporting foreign accounts. Note also that the minimum thresholds for FATCA Form 8938 reporting are higher than for FBAR.

FBAR non-filing penalties

 Penalties for not filing FBARs are high, starting at $10,000 per year for unintentional non-filing or errors, and starting at $100,000 or half the balances of the foreign accounts (whichever is higher) for willful non-filing, omissions or errors.

Preparing to file an FBAR

The most important part of preparation is gathering the information you need, in the form of bank and other financial account statements that show the account and financial institution’s details and the account balances. As you have to report the maximum balance in the year, you will also need to work out and note this for each of your foreign-registered financial accounts.

If you haven’t filed even though you met the threshold

Many US expats are not aware of the obligation to file FBAR. If you didn’t know about it and want to get back into compliance, the filing procedure can be quite simple.

The IRS states that if you have been filing and paying your taxes on any income generated from these accounts and need only to file your delinquent FBARs, you can simply file the FBARs with the Treasury and provide a short statement as to why you did not file. If you are late on your taxes as well, the IRS offers programs to catch up on late filings without incurring penalties other than interest, provided you qualify for those programs.

If you haven’t filed prior year FBARs and tax returns, you should consult a tax specialist to determine the best strategy to minimize potential penalties.