FBAR or FinCen Form 114
What is an FBAR and who needs to file them?
The Foreign Bank Account Report (FBAR) or FinCEN Form 114 is an annual report that is used to show your financial interest in or authority over a foreign financial account. A lot of people are confused about whether they should file FBARs and how to evaluate whether they’re over the filing threshold.
Do I need to file FBARs?
FBAR filing is required for US persons holding non-US accounts in which the added maximum balance of all of these accounts exceeds $10,000 USD at any point during the calendar year (January 1 – December 31).
For example, if you’re a US citizen or Green Card Holder living in the UK with a savings accounts, current account and a pension account, you would need to look through the statements for each account and pick out the highest balance during the calendar year. Add these three highest balances together and if the sum exceeds $10,000 USD or GBP equivalent, you would have to report all of your accounts on the FBAR. This includes any old bank accounts that have nothing in them but are still open. FBAR is an ‘all or nothing’ reporting; if you reach the threshold, any open account has to be reported.
Security accounts must also be reported.
Where is an FBAR submitted to?
Your FBAR is filed to the Department of Treasury using FinCEN Form 114 and is not filed with your federal income tax return to the IRS.
If you have a UK bank account, once the bank knows you are an American it will report the necessary information to the US Treasury. If the bank knows you are a US person, you should receive a W8 or W9 certification sent by the bank so that they have your correct Taxpayer Identification Number. They then have the responsibility to report details of your account to US treasury. If you are a dual national, inform the bank that you are a US citizen.
Will I be penalised for failing to file an FBAR if I’m required to file?
Failing to file FBARs in the last six years can result in severe fines and penalties. The fine can be $10,000 USD per violation, and if you have been found to be wilfully avoiding filing, the fine can be a hefty $100,000 USD or 50% of the account balance at the time of violation.
If you have failed to file your FBARs, you can take advantage of the streamlined programme and become compliant while being able to avoid penalties.
Will I be taxed on this $10,000 reported on the FBAR?
For an FBAR, the balance of your foreign accounts will not be subject to tax – it’s just informational reporting.
For example, if you had $10,000 in a pension bank account and have already paid tax on this, you will not get taxed on the balance. However, if it’s a savings account that earns interest, the interest income will have to be reported on a separate tax return going to the IRS. If you pay UK taxes on that interest income you may have Foreign Tax Credit to use on your US tax return, meaning you may end up not pay any US taxes on that income.
I’m over the threshold, so now how do I go about filing an FBAR?
Tax professionals will prepare and file FBARS electronically for clients. If want to do it yourself, you can do so by visiting the Treasury website, which is very user friendly with instructions to help you go through the form.
What sort of information do I need to give on the form?
You will need to give your name, social security number and address, alongside basic information for the bank accounts, including the financial institution’s name, address, your account number and the maximum balance the account held at any time during the calendar year (January 1 – December 31).
Go through your bank statements and find the highest balance during the year for each non-US bank account.
To be tax compliant, just make sure you’ve been filing your FBARs on a yearly basis, with another form attached to your tax return – Form 8938. The filing threshold for this form is higher than for an FBAR.
What is Form 8938 and who needs to file it?
Form 8938 is a Statement of Specified Foreign Financial Assets. This form is similar to an FBAR form, but the big difference is that the filing thresholds are higher and are dependent on status.
Who needs to file Form 8938?
If you are Married Filing Separately, Single or Head of Household, you are required to file 8938 if:
- At any time during the tax year, the aggregate maximum balance of your foreign financial assets exceeds $300,000 USD; or
- At the end of the year, the aggregate highest balances of your foreign financial assets exceed $200,000 USD.
If you are married to a US citizen or Green Card Holder and are filing jointly, the thresholds are doubled ($600,000 and $400,000).
Does property count towards the threshold for filing Form 8938?
There a quite a few people in the UK whose house would be worth at least $200,000 USD, does this mean they have to file Form 8938? To put it simply, no. Property (even if you are renting it out to someone) is not considered a financial asset in the case of Form 8398 or FBARs. Financial assets are intangible assets like stocks, shares, investments, securities, or a bank account.
How do I file Form 8938?
Form 8938 is a form attached to your US tax return which is going to the IRS. Whoever is preparing your return for you would do that.
How do Gifts and Inheritances work on a US tax return?
Gifts and inheritances are not considered income, so they do not appear on your personal income tax return. In order to report gifts and inheritances to the IRS, you will have to know who the gift giver or deceased person is.
What are the filing and tax requirements when receiving gifts or inheritance?
If the gift giver is a US person, it is their responsibility to file the appropriate US gift tax forms. They may not have to pay gift taxes, as there is a Lifetime Gift Tax Exemption. For 2020, the exemption is $11.58 million USD before paying any gift taxes.
The same principle applies for inheritances or estates received from the deceased. If the deceased were a non-resident alien, the filing responsibility falls in your folder as a US person. However, it is just informational filling and there are no income taxes in connection with this filing. You are only required to file this informational filing form if the gift or inheritance for the year exceeds $100,000.
For example, if you are a US citizen or Green Card Holder and a British parent has gifted the equivalent of over $100,000 USD, you will have to report this. Whether the gift is property, a transferred account or something else, it doesn’t affect the reporting requirement as the value is all that matters. The $100,000 gifting threshold is the sum of any gifts given during the year. If you were gifted $50,000 for a house deposit and then $55,000 as an account later in the year, you would have hit the threshold for the year and have to report.
Who is responsible for inheritance tax forms?
The responsibility for gift tax forms and paying any taxes is the responsibility of the deceased persons’ estate and is not the responsibility of the beneficiary. After receiving inheritance, it should already be net of any gift taxes if they apply.