You have probably come across a Foreign Bank Account Report, or FBAR if you are a U.S. citizen, resident, or a business organization with foreign financial accounts. Many people overlook this critical tax filing requirement though. If your combined foreign account balances exceed $10,000 at any time during the year, you must file an FBAR (via FinCEN Form 114). The process itself isn’t terribly complicated, but knowing more about the details can prevent you from seeing hefty penalties and help to stay in compliance with U.S. laws.
Here we walk through the FBAR filing requirement, deadlines, what the FinCEN Form 114 is how to file, and what to do if you’re behind. And we’ll also talk about some common misconceptions and related topics like FATCA compliance. Let’s dive in!
So, What is FBAR and Why Does it Matter?
Foreign Bank Account Report is the abbreviation for FBAR. The annual report is a report that the U.S. Department of the Treasury requires that U.S. persons with foreign financial accounts that total in excess of $10,000 in aggregate value at any time during the calendar year, file.
It’s something important to note: FBAR is not a tax. Rather, this is a reporting requirement to ensure that the government knows where U.S. persons have financial assets. Information is used by the government to prevent tax evasion and comply with the rules of international banking. Failure to file an FBAR can have serious financial penalties and even legal consequences.
Who Needs to File an FBAR?
Any U.S. person—including citizens, resident aliens, trusts, estates, and entities like corporations and partnerships—must file an FBAR if:
They have outside of U.S. financial accounts.
At any given point during the year, the total value of these accounts is more than $10,000.
The threshold is a total of the value of all accounts aggregated. For instance, if you have $7,000 in one bank and $4,000 in another you have to file.
Key Takeaways:
The requirement to file includes even if the $10,000 threshold occurs in just a single day.
Also, you must report accounts in which you have a financial interest (however in small amounts) or have signature authority.
Unless certain conditions apply, both account holders report joint accounts.
How to File Your FBAR
It is a separate process from your federal tax return to file an FBAR. The BSA electronic filing system must be used to submit it.
Steps for Filing an FBAR:
- Gather necessary details about your foreign accounts, including:
- Account numbers
- The maximum balances during the year (USD)
- Names and addresses of Institutions
- Use the BSA e-filing system to fill out complete FinCEN Form 114.
- Complete the form online. If you do authorize your tax preparer to file for you, you will be able to sign FinCEN Form 114a.
FBAR Deadlines and Extensions
FBAR deadline aligns with People’s Tax Day, April 15. But if you miss this date, your automatic extension is to October 15. Unlike your federal tax return, the FBAR has an automatic extension.
If you’re filing an FBAR late, however, you may be able to “catch up” through tax amnesty programs like the Streamlined Filing Compliance Procedures or the Delinquent FBAR Submission Procedures without penalties.
FBAR Misconceptions
Some of these myths surrounding FBAR often lead reporting entities to not report. Let’s debunk some of them:
Myth: Accounts that are over $10,000 only need to be reported.
Fact: You must report all accounts if the sum of the highest value of any account foreign account combined is more than $10,000 at any time.
Myth: The FBAR lets you file a federal tax extension, and vice versa.
Fact: FBAR has its own due date and automatic extension along with its own date of pain.
Myth: You don’t need to report accounts you have in someone else’s name.
Fact: You must report the account if you have a financial interest or signature authority.
Penalties for Not Filing an FBAR
Failing to file an FBAR can result in significant penalties, depending on whether the violation was willful or non-willful:
Non-Willful Violations: Violations start at $10,000 per violation. Yet in a groundbreaking Supreme Court case (Bittner) the IRS limited non-willful penalties to no more than $50,000.
Willful Violations: Fines here are steeper, of up to $100,000 or 50% of the account’s balance. There are also criminal charges, such as imprisonment.
If you’re behind on your FBAR filings, consider using the IRS’s amnesty programs:
Streamlined Filing Compliance Procedures: For those who missed out on their tax returns and FBARs.
Delinquent FBAR Submission Procedures: For this crowd that is on tax but behind on FBAR.
Most expats confuse FBAR with FATCA (Foreign Account Tax Compliance Act). While both involve reporting foreign financial accounts, there are key differences:
Filing Entity:
FBAR is filed with FinCEN.
Form 8938 is the one used to file FATCA with the IRS.
Thresholds: Whereas FBAR has a reporting threshold of $10,000, for single filers living in the U.S., the reporting threshold for FATCA is $50,000.
Institutional Reporting: This obliges foreign financial institutions to report directly to the IRS.
Failure to comply with FBAR and FATCA will result in penalties. On the other hand, FATCA is mainly oriented to institutional compliance, whereas FBAR puts greater emphasis on particular transparency of individual account holders.
Filing FBAR Online: A User-Friendly Process
Submitting an FBAR online is designed to be easy. The BSA e-filing system walks users through each section step by step making sure that all the information required by the BSA is captured exactly as it should be. The good thing is, If you know technical stuff you can do this on yourself. If you don’t, you can ask a certified tax preparer for help.
If You Haven’t Filed an FBAR, What Now?
You’re not alone in making FBAR filings and falling behind. Take advantage of the IRS’s amnesty programs to bring yourself into compliance without penalties:
Streamlined Compliance Procedures: Perfect if you’re late on both taxes and FBAR.
Delinquent FBAR Submission Procedures: For those who are just behind on FBAR filings.
These programs are self-certification of your failure to file was not willful.
Conclusion
Filing your FBAR does seem to be a big headache that needs to be taken care of, but to be honest, it is a very important requirement for U.S. people who have foreign financial accounts. To remain compliant and not get stressed, you need to know the modes of filing, the deadlines, and the penalties involved.
So whether you’ve never filed an FBAR, or now that you’ve missed a few, you don’t need to make the process complicated. Using tools like the BSA e-filing system and assistance from experts you can be confident you will appropriately report your foreign financial accounts in a timely manner.