While some are unaware of the obligation or choose to ignore it, many US citizens who live abroad are obligated to file an annual report of their foreign bank and financial accounts with the US Department of the Treasury. This report is called the Report of Foreign Bank and Financial Accounts and is commonly referred to as the foreign bank account report or FBAR.
What is FBAR (Foreign Bank Account Report)?
The FBAR was devised as part of the Bank Secrecy Act of 1970 as a means to discourage and prevent tax evasion. Using the FBAR form, US citizens must report all foreign financial assets to the Treasury Department every year their funds exceed a combined total of $10,000 USD.
Why Should I Care about FBAR?
While the FBAR was previously ignored by individuals with foreign-held assets, the United States government has stepped up efforts to investigate and prosecute individuals who fail to comply with the reporting requirements.
If you’re an expat with foreign accounts or an expat who’s been delinquent or noncompliant in the past, you need to be aware of how the FBAR affects you and the options you have for either avoiding penalties or getting current. This guide will explain everything you need to know about the FBAR, including who needs to file, how to file, and when to file as well as information about related topics like the Foreign Account Tax Compliance Act (FATCA).
Who Needs to File the FBAR?
Basically, anyone with $10,000 or more (USD equivalents included) in foreign banks or financial accounts at any point during the calendar year will be required to file FinCEN Form 114 with the US Treasury Department (not the IRS). This means that if you have a checking account in France with a steady balance of $9,950 but the account contains an extra $50 for a day, you will still be required to report that account on the FBAR, as well as any other foreign accounts you have.
Remember to Include All Your Foreign Financial Accounts
It is also important to note that FBAR filing requirements apply to the aggregate balance — meaning that the $10,000 does not have to be in one account but can be spread out over multiple accounts. If you have five foreign bank accounts each with $2,000, you will have to report the accounts on your FBAR.
FBAR Applies to All US Persons, Not Just Citizens
The IRS says that the FBAR is required for “United States persons” who meet the reporting threshold. The term “US persons” refers to citizens, resident aliens, trusts, estates, and domestic entities.
Report Joint Accounts, Too
FBAR filing requirements apply to joint accounts as well, because they apply to persons with financial interest in or signature authority over the foreign account(s). “Financial interest” is determined based upon who is the owner of record or legal title. “Signature authority” means that you have some level of control over the disposition of assets through direct communication with the institution.
How to File the FBAR Using FinCEN Form 114
Your FBAR will be filed online using FinCEN 114 and submitted to the Treasury, not the IRS. After 2013, all filings must be done electronically using the BSA E-Filing System.
Good Records Are the Key to Simplified FBAR Filing
Recordkeeping is the most essential aspect of keeping up with your yearly FBAR obligations. Submitted forms must contain the following information:
- The maximum value (converted to USD using the end of year exchange rate) of each account during the reporting period,
- The name on the account(s),
- The number/other designation of the account,
- The type of account, and
- The name and address of the institution or other person with whom the account is maintained
Many expats also find that they have to file one year and not the next. For this reason, it is important to make good recordkeeping a habit.
When to File: FBAR Deadlines
The FBAR must be filed by April 15th every year. If you miss this deadline, it can be extended automatically to October 15th.
Why You Should File the FBAR: Penalties and the Foreign Account Tax Compliance Act (FATCA)
Penalties for FBAR noncompliance can be severe — violators can be charged civilly, criminally, or both. Negligent or non-willful violations have civil penalties of up to $500 and $10,000 respectively, and no criminal penalties will be assessed.
The civil penalty for willful noncompliance is up to $100,000, and criminal penalties of up to $250,000 or 5 years in prison or both can and will be assessed in addition. If you are found to be breaking certain other laws, the penalties could escalate to up to $500,000 or 10 years in jail or both.
How to Avoid FBAR Penalties
Under the Streamlined Filing Procedures, expats can eliminate the late-filing and FBAR penalties, so long as your lack of filing was non-willful. (“Non-willful” means you weren’t purposely hiding money overseas in an effort to avoid paying US taxes.) There are no other restrictions to filing under the Streamlined Procedures, so this is a great option if you are behind on tax return and FBAR filings.
Other Foreign Financial Reporting for Expats
Years ago, some expats got comfortable evading the FBAR because it was hard for the IRS to track down violators. The FBAR is required for US citizens because foreign banks don’t have the same reporting requirements as institutions in the US, but this fact also makes it harder for the US to investigate potential noncompliance cases.
The Foreign Account Tax Compliance Act (FATCA) changed all of that. FATCA requires individuals or businesses with foreign accounts meeting the reporting threshold of $50,000 to file Form 8938 with the IRS.
Form 8938 is different from the FBAR on multiple levels:
- FATCA is filed with the IRS as part of your tax return
- FATCA reporting thresholds are higher
- Most importantly, FATCA requires foreign financial institutions to report directly to the IRS on financial accounts held by US taxpayers
This last point is critical. Because foreign financial institutions report directly to the IRS, the government can find out easily about your unreported foreign assets.
Questions About Your FBAR?
Have questions about your FBAR? Want to learn about other expat tax services to take care of your yearly Federal tax return, FATCA reporting, and more? Please contact us today to speak with an expat accountant about your unique tax needs.