If you are a U.S. citizen living abroad, or have investments or bank accounts in other countries, you may need to file a Foreign Bank Account Report (FBAR) alongside a standard tax return to inform the IRS of any overseas investments.
The IRS introduced this to avoid tax evasion, which is most often achieved by moving money into foreign (non-U.S.) bank accounts. For expats, you will need to declare the balance of any bank accounts held outside the U.S. along with any foreign assets, stocks or shares held in financial institutions, and foreign mutual funds such as life insurance policies.
Who Files an FBAR?
Every U.S. citizen, resident, business, partnership, limited company or corporation must file an FBAR if they own assets or bank accounts outside the U.S., even if they are currently residing in the U.S. This includes people who own business ventures, bank accounts, stocks or insurance policies in a foreign country. You will also be asked to file if you are a trustee or nominated user of any of these assets, even if you do not stand to receive any financial gain. This means that, if you are an employee of a corporation and have overall control of the finances, you will still need to file an FBAR, even if the finances are not directly owned by you.
You will be required to file a FinCEN 114 form for every year that your assets and bank account balances combined reach a total of over $10,000 – even if this is only briefly at some point in the year. This means if you have a bank account in the UK, an insurance policy in the UK and another account in Australia, you would have to file an FBAR, even if those assets only contain $3,500 each, as the combined total exceeds $10,000.
When is the FBAR deadline?
The FBAR deadline is usually on the same date as your overall tax return deadline. In 2022, if filing for 2021, the deadline is April 18 throughout most of the U.S., though Maine and Massachusetts have until April 19 due to Patriot’s Day.
You will need to file annually before April of the year following the tax year.
How to File Your FBAR
You can file an FBAR by submitting your foreign account information via the FinCEN 114 form. This form is directly routed to the Treasury Department’s Financial Crimes and Enforcement Network for review. You MUST file this form online to ensure it is directed electronically to the correct department.
For most expats or people with long-term non-U.S. investments, you will need to file annually.
Alongside your FBAR form, you will need to complete a Schedule B 1040 form as part of your tax return. Expats are required to do this to declare any external bank accounts to the IRS. Although this form is similar to the FinCEN 114 form, it gets sent directly to the IRS rather than the FinCEN and takes your non-U.S. assets into account in regard to your tax payments and refunds, whereas the FinCEN provides most information for tax security.
An 8938 form through the IRS may also need to be filed alongside your tax return if your foreign assets meet a higher threshold (these thresholds are subject to change so you will need to check the IRS website to discover if your accounts meet this).
Neither of these forms replace the FBAR form and you will need to fill out all relevant forms for both the IRS and FinCEN, should you hold assets outside the U.S.
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What Documents Do I Need to File an FBAR?
It is important that you keep documentation to prove where the assets are, and the information or finances held within them. You will need to provide:
- The account/asset name
- The named owner
- Account number
- Name and address of the account and of the account holder
- The maximum value throughout the U.S. financial year (January 1 to December 31)
Although the FBAR is not specific on the type of documents needed to verify this information, it is important that you keep any statements or records regarding your assets for at least 5 years, should they be required at a later date.
Who Doesn’t Need to File an FBAR? – The Exceptions
There are certain exceptions with overseas financial entities when filing FBARs, though tax on these will still need to be declared on your normal tax return form to the IRS.
You will not need to file if:
- You are the beneficiary of a trust, and the trustee has already declared these on an FBAR themselves. (If you are unsure if they have filed personally, then it is better to submit a FinCEN form in the event that the trustee has not filed – this will prevent potential financial penalties later).
- If the funds are held in a personal retirement plan or Individual Retirement Account (IRA).
- If the assets are maintained within a U.S. banking facility overseas.
- If the finances or assets are owned or partly-owned by an international financial institution or government entity.
If your accounts or assets do require you to file an FBAR, there may also be occasions that mean you do not need to file it annually, or at all.
- If your foreign accounts are consolidated on a single FBAR that has already been submitted.
- If you own foreign assets or accounts jointly with a spouse or partner and they have previously completed the FinCEN 114a form to give you authority to file on their behalf. This means that only one of you will need to declare the foreign assets on an FBAR. In this case, tax return filing has no impact on your eligibility to file an FBAR. Even if you normally file jointly for tax, you still need to complete a 114a form to be able to file jointly for foreign account or asset declaration.
What Happens If You Miss the Deadline?
If you miss the April deadline you will receive financial penalties. These penalties could be added to your existing tax return if you either file later than the deadline, do not fill in the correct form, were not aware that you needed to file an FBAR, or miss assets when filing. These issues could be seen as attempting to hide assets and can be incredibly costly. Each violation could cost up to $10,000. For this reason, it is worth seeking advice, especially on your first FBAR attempt.
If you have larger assets outside the U.S. and have filed previously, FinCEN will consider your missed deadline or inaccurate filing as attempts to hide assets. This could mean they impose much higher financial penalties of up to $100,000 per violation.
The maximum penalties for criminal or civil violations of your FBAR are:
- Non-wilful violation of a transaction (unknowingly failing to declare an asset on the FBAR or not filing at all due to being unaware) – $12,921
- Wilful violation of a transaction (knowingly failing to declare an asset or account on the FBAR) – $129,210
- Single negligent violation by a business or institution (a mistake regarding a corporation or institution that shows lower financial assets) – $1,118
- A pattern of negligent violations by a business or institution (where it is obvious an institution is repeatedly or deliberately filing incorrectly) – $86,976
FBAR Filing Deadline Extensions
Although the deadline is set at the same date as the tax return deadline for most people, there are certain circumstances where FinCEN will grant an extension.
For example, in 2021, a rule came into play by FinCEN that individuals who had signatory, trustee or nominee obligations toward overseas accounts or assets, but had nothing to gain personally from these in regard to finances, would be granted an extended deadline to file the FBAR. In these cases, the obligated party would have until April of the following financial year to file the FBAR. For finances that need to be declared for the 2021 tax year, the FBAR would not need to be filed until an April 2023 deadline.
This same deadline applies to specific employees or officers working with investment advisors who are registered with the U.S. Securities and Exchange Commission (SEC). This means that employees of larger global entities that are registered with SEC would not be immediately responsible for filing an FBAR at the same time as the overall tax return, simply for being an account controller.
Even if you do not meet these criteria, you may still be eligible for an automatic extension if you visit the FinCEN website to request one. If you request an extension, this is an automatic 6 months from the original deadline of April 18, giving you until October 15 2022 to file the FBAR for 2021. If you miss this extended deadline, then penalties will be incurred for your late response.
The FinCEN 114 form is available from January 2022 online to file before April 18 2022. So, if you have assets or accounts overseas, it is best to submit the FBAR as soon as possible to avoid any charges that could be incurred due to late filing.
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