The Foreign Bank Account Reporting requirement, commonly referred as the FBAR, requires United States persons with either financial interest or signature authority over one or more financial accounts outside the US to file an annual informational report on those accounts. United States persons include U.S. citizens, resident aliens, trusts, estates, and domestic entities. Below, we’ve answered your most frequently asked questions about how to file an FBAR.
What’s the Story Behind the FBAR?
The Bank Secrecy Act established the FBAR filing requirement in 1970 with the purpose of obtaining information that would presumably be useful in investigations related to criminal, tax, or regulatory violations. In 2001, the Patriot Act expanded the purpose to include protection against international terrorism.
To Whom Is the FBAR Reported? The IRS?
Actually, no, the FBAR is not processed by the Internal Revenue Service. Instead it is monitored by a bureau of the Treasury Department called Financial Crimes Enforcement Network (FinCEN).
Can You Explain How to File an FBAR? What Is the Deadline?
FBAR is not reported as part of your tax return; it is filed separately and must be e-filed under FinCEN Report 114.
The FBAR deadline is April 15th. FinCEN will grant filers an automatic extension to October 15th if they fail to meet the regular due date of April 15th.
What Is the Filing Threshold Requirement?
The aggregate value of your accounts outside the United States must exceed $10,000 during the tax year being reported in order to be considered a requirement for filing. This means that if you have three accounts with $4,000 each in them, you must file. Even if you have two accounts with $5,001, you must file the FBAR.
When Do I Have an Interest in an Account? What Is Signature Authority?
Per the regulations, financial interest means you are the owner of record or holder of legal title. The owner of record or holder of legal title is your agent or representative; thus, you have sufficient interest in the entity. Signature authority means you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining that account.
Are There Any Penalties for Failure to File?
Yes, and they can be significant! Civil monetary penalties are adjusted annually for inflation. For civil penalty assessment prior to August 1st, 2016, if non-willful, the amount is up to $10,000 or 50% of account balances. Penalties assessed after that date can be as large as $12,459 per non-willful violation. Criminal penalties may also apply.
What Is the Difference Between FBAR and FATCA?
FinCEN Form 114 is an informational return reported to the Treasury Department’s Financial Crimes Enforcement Network. The form required for FATCA reporting is the Form 8938, which contains additional scheduled items that must be reported within the form 1040 (Individual Income Tax Return), reported to the Internal Revenue Service.
Have More Specific Questions About How to File an FBAR?
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