Written by: Josh Katz, CPA
Aside from the annual income tax return filing, US expats must also be aware of the FBAR filing requirement, especially if they have non-US financial accounts. Failure to file for this form could lead to serious penalties so it is important to know what needs to be done if you need to file one.
We have listed 5 important things that you need to know about the FBAR.
1. What is an FBAR?
FBAR is a Report of Foreign Bank and Financial Accounts for Financial Crimes Enforcement Network (FinCEN) Form 114, which is a US Treasury Form.
Filing an FBAR was created to expose hidden assets in offshore accounts and combat tax evasion. With the enforcement of this rule, Americans and green card holders are now required to report or disclose their non-US financial accounts to the US if they exceed the required threshold.
Nevertheless, FBAR is not a tax form, it is only a report disclosing the non-US financial accounts of a US person. The balances reported on this are not taxed.
2. Who needs to file an FBAR?
A US person, including a citizen, green card holder or resident alien, company, or even a trust or estate must file for an FBAR if:
- They have a financial interest (as an owner) or signature authority (you can control the distribution of funds in the account) on a financial account/s located outside the United States and if,
- The combined value of those non-US financial accounts exceeded $10,000 at any time during the calendar year.
It is important to note that a US person does not need to live abroad to be subject to FBAR filing requirements – even an account holder living in the US can be liable to file an FBAR.
Accounts that need to be reported on FBAR:
- Bank accounts such as savings, checking, time deposits, and joint accounts
- Pension or retirement accounts
- Mutual funds and other pooled investment/funds
- Insurance policies or annuity contracts with a cash value
- Financial accounts at a foreign financial institution including foreign stock or other securities
- Financial accounts held in a US bank’s foreign branch
- Any other accounts held in a non-US financial institution that provides financial services
3. When to file an FBAR?
Most people think that if they have a foreign bank account, they immediately need to file for an FBAR, which is not the case. As mentioned above, you only need to file if you exceed the $10,000 threshold.
FBAR is due every April 15th, which is the same due date as the US federal income tax return for most US taxpayers, if they are not residing abroad. If you cannot meet that deadline, there is an automatic extension allowing tax filers to submit their FBARs until October 15th.
4. How to file an FBAR?
FBARs need to be submitted to the US Treasury Department and not to the IRS like your US tax return. To file, you need to use FinCen 114 Form and electronically submit it to the BSA e-filing site.
You need to provide the following information on your FBAR:
- Account Name/s
- Account Type
- Account Number
- Name and address of the foreign institution maintaining the account
- Maximum account value (converted to USD using the year-end exchange rate) during the reporting period
If you only need to report a joint account with your US spouse, only 1 FBAR needs to be filed. Your spouse needs to sign Form 114a (FBAR e-file authorization form) which will allow you to file for both of you.
However, if your spouse also has an additional separate account to report, then you both need to include the joint account on your individual FBAR forms.
Furthermore, since non-US bank accounts are denominated in foreign currencies, it is important to convert the amount into US dollars for reporting purposes. For precise conversion, please refer to the FBAR exchange rate published annually by the US Treasury Department.
5. Penalties and Delinquent FBARs
Failure to timely file your FBAR could lead to civil or criminal penalties. The amount depends on the circumstances.
Non-willful violation, in which the person was not aware of the filing obligation, could be penalized for at least $10,000. On the other hand, if a person reasonably knew and purposely ignored the filing requirement, a penalty of at least $100,000 or 50% of the value in the account at the time of the violation, whichever is higher, could be imposed.
If you haven’t filed for your FBARs and the IRS hasn’t contacted you, then you must file as soon as possible.
There are two ways to catch up on your FBARs:
- If you’re behind both on your income tax return and FBARs, you can file under the Streamlined Compliance Procedures.
- If you are up to date on your income taxes and only need to file for late FBARs then you can file under the Delinquent FBAR Submission Procedures.
If you need help with any of the above or have any further questions about FBARs, feel free to contact email@example.com