Editor’s Note: This post was originally published in 2015 and has been updated for accuracy and comprehensiveness.
While filing US tax returns is a well-known responsibility of Americans living abroad, requirements such as the Foreign Bank Account Report (FBAR), are often forgotten. What’s the big deal, you ask? Well, failing to file the FBAR can draw the attention of the IRS, as well as some harsh penalties. To make sure you stay compliant (and off the IRS’ radar!) we have compiled the things you need to know about FBAR reporting!
What is FBAR?
FBAR was created as part of a US initiative to uncover tax cheats hiding money in offshore accounts. FBAR has been around for years, but really hasn’t been enforced by the IRS—until a few years ago. With this new initiative, the IRS is forcing those with money in overseas bank accounts to disclose those accounts if balances exceed the threshold. Keep in mind that those filing FBAR aren’t taxed on the balance of the accounts or anything of the sort—it’s truly just a reporting requirement so the IRS knows what money lies overseas.
Who Needs to File?
Any US person (that is, any person considered a US tax resident) with a foreign account balance of $10,000 or more at any point during the tax year will need to file. And this means even if the balance hit $10,000 for just one day (or one minute!). The threshold is also an aggregate amount—meaning, if you have multiple accounts, the total balance of all of your accounts is what would trigger a filing requirement. So, if you are thinking that keeping $4,000 in one account and $7,000 in another will enable you to avoid filing, this isn’t the case.
FBAR also applies to those who simply have signing authority over an overseas account. That’s important to remember, as the account doesn’t have to be your account. To explain further, signature or authority means the authority of an individual to control the disposition of money, funds or other assets held in a financial account by direct communication to the person with whom the financial account is maintained. So, for example, if you were a signatory on one of your employer’s bank accounts, this account should be reported on your FBAR form.
What Needs to Be Filed?
The largest number of FBAR filers will be simply reporting their foreign bank account balances. However, you must also report:
- Foreign stock or securities held in a financial account at a foreign financial institution (the account itself must be reported, but the contents of the account do not need to be reported separately)
- Financial account held at a foreign branch of a US bank
- Foreign mutual funds
- Foreign-issued life insurance or annuity contract with a cash value
How Do You File?
This process is different than filing your Federal Tax Return. FBAR is filed separately to the Department of the Treasury—not the IRS. It used to be filed via TD 90-22.1 by mail, but now you use FinCEN 114 and submit it electronically through the BSA e-filing site. The process is pretty simple and simply requires you to gather all pertinent account information and enter it into the online system. You can have a third party prepare it for you, (i.e. a certified tax preparer) but you must file FinCEN 114a in order to give the party authority to do so. This form is also necessary if you hold joint accounts. Your spouse would sign this form to allow you to file on their behalf. Keep in mind that if your spouse has other accounts you are not on that he or she needs to file (i.e. individual accounts), they must file their FBAR separately (including the FBAR for your joint account).
The due date is typically April 15th, with an automatic extension of 2 months for US citizens living abroad. An extension is available, which extends the due date to October 15th.
What are the Penalties for Failing to File?
For those whose lack of filing was non-willful (meaning you truly didn’t know about your reporting obligation), the fine can be $10,000 per violation. If it is determined that you purposely avoided filing, the fine can be $100,000 or 50% of the balance of the account at the time of the violation – whichever is greater. As you can see, penalties can add up quickly if you are years behind in your filing!
What Should I Do if I Haven’t Filed and Should Have?
First off, don’t panic! Millions of Americans are in your position and the IRS has created two amnesty programs to help you get caught up. The program most helpful to expats is the Streamlined Filing Procedures. This program is available to US citizens living both in the US and abroad, and all who have failed to file due to lack of knowledge of their obligations are eligible.
Previously, there were some restrictions that prevented many expats from qualifying for the program, but recently the IRS lifted those to make it easier for people to get caught up. The most important change to the Streamlined Filing Procedures is that there is no late filing or FBAR penalties! That’s right—you can get caught up without harsh penalties! Note: if you live in the US, there is a 5% offshore penalty that applies.
To file under this program, you will file the last 3 years of Federal Tax Returns if you haven’t already done so as well as the last 6 years of FBARs. FBAR reporting will be done electronically, just as it would if you filed on time, with special notation confirming your participation in the program.
Getting caught up is extremely important if you are behind in your filings. While there are no penalties when filing under the Streamlined Procedures, if the IRS finds out before you come forward, you will be ineligible for this program and subject to the maximum penalties. With the introduction of the FATCA legislation in 2010, the chances of getting caught have increased, as foreign financial institutions are now required to notify the IRS of your foreign accounts. Basically, the IRS will assume you were hiding the account(s) and you will be at their mercy. No one wants that!
Need Help Filing Your FBAR?
Our expat-expert CPAs and IRS Enrolled Agents have helped hundreds of expats successfully file their FBAR—let us help you! Contact us today.