US taxpayers report any foreign financial accounts by filing an FBAR (Foreign Bank and Financial Accounts Report) on FinCen Form 114.
Whether you live in or outside of the US, you may have FBAR filing requirements if you have assets or accounts based in a foreign country. Foreign financial accounts, such as bank accounts, mutual funds and brokerage accounts, must be reported to the Treasury Department.
The FBAR began as part of the Bank Secrecy Act of 1970, in order to prevent the hiding of assets overseas in order to avoid US taxes. The details of FBAR filing can be complicated, and due to a lot of misunderstanding and confusion there has been widespread non-compliance.
When do I have an FBAR filing requirement?
When a US person or entity:
- Has a financial interest in or signature authority over a foreign financial account outside of the US
- The aggregate value of all foreign financial accounts is more than $10,000 at any point within the calendar year. Even if no single account exceeds the value of $10,000, be mindful that the aggregate could be over this threshold.
Even if the foreign account does not produce any taxable income during the year, it is still held to the reporting requirements. Signature authority does not mean that you have to be the owner of an account.
In order to calculate the maximum value of your accounts throughout the year, review your account statements or request the amounts from your financial institution. You must report this value in USD. For the FBAR exchange rate, use the Treasury year-end exchange rate.
Taxpayers with specified foreign financial assets that exceed certain thresholds must use Form 8938 to report these assets. Although there is duplicate reporting on this additional form, you still need to file FBAR Form 114.
What it means to have financial interest in or signature authority over a foreign account:
1.When a taxpayer, their agent, or representative is the owner of record or holder of legal title.
2.When the taxpayer has sufficient interest in the entity that is the owner of record or legal titleholder.
3.When a taxpayer has authority to control the disposition of account assets.
What are the consequences of not filing FBARs or reporting foreign accounts?
If you fail to comply with FBAR requirements, you face serious penalties and fines from the IRS. You could face huge monetary penalties and criminal charges.
Civil penalties for non-willful failure to file FBAR can be up to $13,481 per violation – this means even if it was due to an honest misunderstanding. For willful failure, the penalty can be up to $134,806 or 50% of the account balance, per violation.
Criminal penalties for wilfully failing to file or maintain records while violating other laws can include fines of up to $500,000 and imprisonment of up to 10 years, in addition to civil penalties.
Wilfully failing to file or maintain records can land you with up to 5 years in prison and a fine of up to $250,000.
Will the IRS find out if I fail to report foreign accounts in accordance with FBAR filing requirements?
Through the FATCA (Foreign Account Tax Compliance Act), it is easy for the IRS to discover non-compliance. The provisions of FACTA requires foreign financial institutions to collect and report information on accounts owned by US persons to the IRS. This information is easily accessible to the IRS in order to cross-reference with the information you provide. It is best to report your own non-compliance in order to avoid harsh criminal and civil penalties.
How to file the FBAR:
However, taxpayers must file the FBAR with the Treasury Department, not to the IRS with your federal income tax return. The FBAR is sent electronically with the Financial Crimes Enforcement Network’s BSA E-Filing System.
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What information do I need to report foreign financial accounts?
For each account reported on the FBAR, you will need the following information:
- The maximum value of the account during the calendar year;
- The account number;
- The name listed on the account;
- The type of account;
- Name and address of the financial institution.
When is the deadline to file FBARs/ FinCen Form 114?
The deadline for filing FBARs is the same as your federal income tax return – April 15th. There is also an option for an extension on this deadline, to October 15th. You don’t need to request an extension to file the FBAR.
The due date may be further extended if you are affected by a natural disaster
What to do if you haven’t filed FinCen Form 114 or reported foreign financial accounts?
If you discover that you have delinquent FBARs, you need to act on this immediately. You will file an FBAR form in a previous year electronically using the BSA E-Filing System website, as soon as possible. You will be able to enter the calendar year for which you are reporting and an explanation for delinquency. The IRS will then determine whether you had reasonable cause for late filing, and if so, you will not face a penalty assessment. Contact a tax professional to minimise the risk of FBAR penalties.
Are there filing exceptions for FinCen Form 114?
If all of your foreign financial accounts are jointly owned with a spouse who is already filing an FBAR, you do not need to file your own copy. If either you or your spouse own a separate foreign account of any value, you cannot file jointly. You will need to complete and sign FinCen Form 114a, to let your spouse file on your behalf. Form 114a does not need to be sent with your FBAR filing, but you should keep a copy to provide to the IRS if requested.
You do not need to report foreign accounts if they are:
- Part of a trust of which you are a beneficiary, if another US person is already reporting this on an FBAR.
- Held in a retirement plan or individual retirement account on your behalf.
- Owned by a government entity or international financial institution.
- Maintained by a US Military financial institution.
- Correspondent or Nostro accounts.
Which financial accounts are reportable on the FBAR?
- Bank accounts: including checking accounts, savings accounts and time deposits.
- Securities accounts: including brokerage accounts and securities derivatives.
- Cryptocurrency: including Bitcoin.
- Mutual funds or similar pooled funds.
- Commodity options or futures accounts.
- Insurance policies with a cash value.
- Any other accounts with a foreign financial institution.