Most US expats are aware that they may have an ongoing requirement to file US income tax returns yearly, if they earn income abroad. However, there is a less well-known US requirement to file what is known as a Foreign Bank Account Report (FBAR), for which many expats with foreign financial accounts are responsible. Failing to file a required FBAR can lead to severe IRS penalties, so it is crucial for expats to know in which situations they need to file an FBAR.
At Universal Tax Professionals, our primary focus is to simplify your US expat lifestyle, particularly in comprehending your filing obligations. Our extensive list of US expat tax services is tailor-made to help Americans like you in effortlessly managing US tax responsibilities while residing overseas.
What is an FBAR, and when would I need to file one?
An FBAR is a US Treasury form, known as Foreign Bank Account Reports. The IRS and Treasury Department have markedly stepped up their enforcement of foreign financial reporting required of US taxpayers in recent years, and the FBAR reporting requirement is one of the key tools the agencies use to enforce compliance of required foreign financial disclosures, in their efforts to combat tax evasion.
No tax is assessed via the FBAR, it is just a report disclosing the foreign bank and other financial accounts of US persons, if the combined balances of the accounts exceed the reporting threshold. It is important to note that a US person (whether he or she is a citizen, green card holder or resident alien, or even a trust or estate) doesn’t need to be abroad to be subject to FBAR filing requirement – even an account holder living in the US can be liable to file an FBAR.
US persons are required to file an FBAR if the combined balance of all of their foreign financial accounts is more than $10,000 at any time during the calendar year.
If you have multiple foreign accounts, keep in mind that the filing requirement is based on the total balance of your accounts, in aggregate – so making sure that you keep less than $10,000 in multiple accounts will not prevent you from having to file an FBAR.
The FBAR filing requirement applies to all foreign financial accounts in which you have a financial interest (as an owner) or signature authority (you can control the distribution of funds in the account).
FinCEN Form 114
FinCEN Form 114 is the form required to report foreign bank and financial accounts. Unlike tax forms submitted to the IRS, FinCEN Form 114 is filed electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System. This distinction is important because it requires expats to use a separate filing process from their annual US tax return.
What foreign bank accounts need to be reported on an FBAR?
Are only foreign bank accounts reported on an FBAR? No – while most of the foreign financial accounts reportable on an FBAR are indeed bank accounts, other types of foreign financial accounts must be reported, including:
- Foreign pension accounts
- Foreign mutual funds
- Financial accounts at a foreign financial institution including foreign stock or other securities
- Financial accounts held in a US bank’s foreign branch
- Foreign-issued life insurance or annuity contract with a cash value
What data gets reported on an FBAR?
When filing a Report of Foreign Bank and Financial Accounts (FBAR), individuals are required to provide detailed information for each foreign financial account over which they have either ownership or signature authority. The key data reported on an FBAR includes:
1. Maximum Account Value:
- The highest value of the foreign financial account during the reporting period.
- The value is converted to USD using the year-end exchange rate.
2. Account Holder Information:
- The name or names associated with the account.
- If there are multiple account holders, all relevant names need to be disclosed.
3. Account Number
- The unique identifier assigned to the foreign financial account.
4. Account Type
- Specifies the type of the account, such as a bank account, investment account, or any other relevant classification.
5. Foreign Institution Details
- The name and address of the foreign financial institution that maintains the account. This information helps ensure clarity and transparency regarding the location and management of the funds.
When is the FBAR due?
The FBAR Form FinCEN 114 is due on April 15th following the calendar year being report, which is the same due date as the US federal income tax return for most US taxpayers, if they are not residing abroad. However, the FBAR is automatically extended until October 15th for any taxpayer that needs additional time to prepare and file one, and no extension form needs to be filed.
Do I have to file an FBAR every year?
No – an FBAR only needs to be filed in a year in which the combined balance of a US person’s foreign financial accounts exceeds the $10,000 threshold. If the combined balance is $10,000 or less in any year, there is no requirement to file an FBAR for that year.
It’s important to emphasize that when determining whether you exceed the FBAR threshold, you must convert the amount to US dollars using the FBAR Exchange Rate from by the Treasury Department.
My spouse and I jointly own a foreign bank account – Do we each need to file an FBAR?
If you and your spouse both only hold joint foreign accounts, only 1 FBAR needs to be filed – your spouse will need to sign your FBAR e-file authorization Form 114a to allow you file the FBAR for both of you.
If your spouse has individual foreign financial accounts, he or she must file a separate FBAR. In that case, both of you must both include your joint accounts on each of your individual FBAR reports.
How to submit FinCEN Form 114?
1. Access the FinCEN BSA E-Filing System:
Visit the official website at bsaefiling.fincen.treas.gov. This is the only platform where the form can be submitted.
2. Create an Account or File as a Guest:
While you can file as a guest, creating an account offers benefits such as tracking your submission and receiving confirmation of filing.
3. Complete the Form Online or Use Approved Software:
- You can fill out the form directly on the BSA E-Filing portal.
- Alternatively, approved third-party tax software may integrate FBAR filing as part of their services.
4. Submit by the Deadline:
Ensure your completed form is submitted by April 15th, or October 15th if the automatic extension applies.
5. Save Confirmation of Filing:
After submission, you will receive an acknowledgment from FinCEN. Keep this confirmation as proof of compliance.
Can someone else file an FBAR (FinCEN Form 114) for me?
Yes. If you prefer, a tax preparer or accountant can file the FBAR on your behalf. You will need to provide authorization using Form 114a, which grants them permission to electronically submit the FBAR for you.
What happens if I don’t declare a foreign bank account?
Failing to declare a foreign bank account when required can lead to significant penalties, even if the failure was unintentional. The IRS imposes severe fines for not disclosing required foreign accounts, which can accumulate with each year of noncompliance.
What is the penalty for not filing an FBAR?
You may be subject to penalties – severe ones. As of 2023, even if you were unaware that you had to file an FBAR, you could still face penalties of up to $15,611 for each violation. If you knowingly ignored your FBAR filing requirement or reported inaccurate information, you could be subject to a penalty of $156,107 or more per violation.
What is the difference between FBAR and FATCA Reporting?
While both FBAR and FATCA are designed to capture information about foreign assets held by US taxpayers, they have different reporting requirements and thresholds:
- FBAR: Requires filing for foreign accounts if the total value exceeds $10,000 at any point during the year. This applies to bank accounts, mutual funds, and other foreign financial accounts.
- FATCA: Applies to assets beyond just bank accounts, including ownership in foreign businesses or partnerships. FATCA Form 8938 must be filed if the value of foreign assets exceeds a specific threshold, which varies depending on whether the filer lives in the US or abroad and their filing status.
Unsure whether you need to file an FBAR, or need help getting your FBAR prepared and filed? Contact Universal Tax Professionals today!
