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.
What Is An FBAR, And When Would I Need To File One?
An FBAR is a US Treasury form, FinCEN 114 – Report of Foreign Bank and Financial Accounts. 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 acitizen, 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).
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 on an FBAR, 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?
The following information gets reported on an FBAR, for each foreign financial account over which the US person has either ownership or signature authority:
- The maximum account value (converted to USD using the year-end exchange rate) during the reporting period
- The name(s) on the account
- The account number
- Account type
- The name and address of the foreign institution maintaining the account
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.
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.
I Didn’t Know That I Had to File an FBAR – What Happens If I Don’t File It?
You may be subject to penalties – severe ones. Even if you were not aware that you had to file an FBAR, you still can be subject to severe penalties – as of 2021, up to $12,921 for each violation. And if you knew that you had an FBAR filing requirement and knowingly ignored it, or reported inaccurate information, you could be subject to a penalty of $129,521 or more, per violation.
Unsure whether you need to file an FBAR, or need help getting your FBAR prepared and filed? Contact Universal Tax Professionals today!