Navigating foreign bank account reporting? This term refers to the FBAR: a U.S. regulation requiring individuals and entities to report foreign accounts exceeding $10,000 in value. Whether you’re questioning your filing obligations or seeking clarity on the process, this guide explains the essentials of FBAR, outlines who must file, and provides a clear path through the reporting procedure, ensuring you meet your responsibilities without any added stress.
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Understanding Foreign Bank Account Reporting
FBAR: Report of Foreign Bank and Financial Accounts
FBAR, which stands for Report of Foreign Bank and Financial Accounts, is a crucial component of the Bank Secrecy Act. It mandates that U.S. individuals report specific foreign accounts, including those in foreign branches, to the Treasury Department. This reporting requirement is triggered when the cumulative value of these foreign accounts surpasses $10,000 at any point within the calendar year. FBAR filings are an annual obligation separate from federal tax returns.
Key Terms to Know
When it comes to FBAR, understanding specific terminologies can make the difference between compliance and violation.
A “U.S. person” can be a citizen, resident, or entity like a corporation, partnership, trust, or estate that is based in the U.S. or doing business in the U.S. A “foreign financial account” can be a bank account, brokerage account, or mutual fund account among others, maintained with a financial institution located outside the U.S.
The term “Signature Authority” refers to the control an individual has over a foreign financial account, while “financial interest” signifies personal ownership or joint ownership of a foreign financial account.
The Role of FinCEN
The Financial Crimes Enforcement Network, often referred to as FinCEN, vigilantly monitors the flow of money. As a bureau of the U.S. Department of the Treasury, FinCEN is tasked with safeguarding the financial system from illicit use by collecting and analyzing financial transactions for signs of money laundering, terrorist financing, and other financial crimes.
FBAR Filing Requirements
Who must file
Under what circumstances should you start preparing for FBAR filing? The short answer is: when the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the calendar year. It doesn’t matter if you own the account individually or jointly with a spouse; if the value crosses the threshold, you must file an FBAR.
It’s important to note that the mandate to file an FBAR applies to a range of U.S. persons including:
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citizens
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residents
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corporations
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partnerships
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limited liability companies
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trusts
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estates
The obligation also extends to financial professionals who have signature authority or other forms of control over foreign financial accounts that meet the reporting threshold.
Types of Accounts Subject to FBAR
In the context of FBAR, not every account is considered equally. The FBAR requires you to report foreign financial accounts if their aggregate value exceeds $10,000 at any time during the calendar year. This includes:
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Foreign bank accounts
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Brokerage accounts
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Mutual funds
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Other types of financial accounts located outside the United States
This includes any accounts in which you have a financial interest or over which you have signature authority.
Who does not have to report foreign financial accounts?
But here’s some good news. There are exceptions to the FBAR reporting requirements. Certain types of accounts do not need to be reported. These include:
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Correspondent/nostro accounts
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Accounts owned by governmental entities or international financial institutions
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Accounts on U.S. military banking facilities
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Certain retirement plans
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Certain trust accounts.
FBAR Filing Process
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After establishing the necessity to file an FBAR, the next step is understanding the procedure. Filing an FBAR requires the use of FinCEN Form 114, which must be submitted electronically. This is done through the BSA E-Filing System, which is the official platform utilized for filing Bank Secrecy Act forms electronically, including the FBAR.
Preparing Your FinCEN Form 114
Filing an FBAR isn’t as simple as filling out a standard form. It requires specific details such as:
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Account numbers
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Names of the financial institutions
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Addresses of the financial institutions
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Maximum values of each account over the reporting period
This means that you must compile detailed information on all foreign accounts you own or have signature authority over, especially when the cumulative value of these account balances exceeds $10,000 at any point during the calendar year.
Using the BSA E-Filing System
Once all the required account information is assembled and you’re ready to file, what’s the next step? Thankfully, the BSA E-Filing System is here to make the process smooth and secure. The system allows for both individual and batch submissions of FBAR forms and enables secure communications with FinCEN. Whether you’re an individual or a professional filing on behalf of a client, the BSA E-Filing System is your go-to platform for seamless and secure FBAR submissions.
How to File FBAR
While filing your FBAR may initially appear intimidating, proper guidance can simplify the process. You must file the FBAR electronically through FinCEN’s BSA E-Filing System. It’s important to note that the FBAR is not filed with your federal tax return.
If you’d prefer to paper-file your FBAR, you’ll need to call FinCEN’s Resource Center to request an exemption from e-filing. If you’d like someone to file your FBAR on your behalf, you can use FinCEN Report 114a, Record of Authorization to Electronically File FBARs.
When to File
When filing your FBAR, timing is as important as the procedure itself. The standard due date for FBAR filings for the calendar year is April 15 of the following year. This means that if you needed to report foreign accounts for 2023, your deadline would be April 15, 2024.
But don’t go crazy if you miss the deadline, an automatic six-month extension to October 15 is granted for FBAR filings, which does not require an individual request.
Calendar Year Reporting
In the context of FBAR, timing is of utmost importance. Here are some key points to remember:
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FBAR filings are required to be based on the calendar year.
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An FBAR report for financial accounts held in 2023 is due by an established deadline in 2024.
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It’s not just about when you file, but also about when your account value exceeded the threshold.
If your foreign accounts exceed $10,000 at any point during the calendar year, you are required to report to a foreign bank.
Automatic Extension and Late Filing
Life happens, and sometimes you might miss the FBAR filing deadline. But don’t panic. FinCEN grants a six-month automatic extension to FBAR filers each calendar year, with the original April 15 deadline extended to October 15. In certain special circumstances, such as natural disasters or other major events, the Financial Crimes Enforcement Network (FinCEN) has the authority to further extend filing deadlines.
Reporting Other Foreign Assets and Income
FBAR is not the sole mechanism for reporting foreign assets and income. U.S. taxpayers, including individuals, corporations, partnerships, trusts, and estates, must file Form 8938 if they have an interest in specified foreign financial assets above certain thresholds.
Form 8938
Form 8938, also known as the Statement of Specified Foreign Financial Assets, is a tax form used by U.S. taxpayers to report their interest in specified foreign financial assets as required by the Foreign Account Tax Compliance Act (FATCA). Specified foreign financial assets may include foreign bank accounts, brokerage accounts, certain foreign securities, and interests in foreign entities. The filing threshold for Form 8938 varies depending on the taxpayer's filing status and residency, and it is filed annually with the taxpayer's federal income tax return. Failure to report specified foreign financial assets on Form 8938 can result in penalties.
Schedule B (Form 1040)
Finally, there’s also Schedule B (Form 1040) to consider. This form is used for reporting interest and dividend income, and it also serves to inform the IRS about the existence of foreign banks or other financial accounts. Unlike FBAR reporting, which requires detailed account information, Schedule B simply asks taxpayers to disclose the presence of foreign accounts and whether they had to file an FBAR, excluding the need to report the actual amounts in the accounts.
Handling Delinquent FBARs and Penalties
What are the consequences of neglecting to file an FBAR or filing it late? Depending on the circumstances, you might be able to utilize the IRS Streamlined Filing Compliance Procedures or the Delinquent FBAR Submission Procedures. These procedures are designed to assist taxpayers in updating overdue tax filings and FBARs with a diminished risk of severe penalties. But erring on the side of caution and filing on time can save you a lot of headaches (and potential financial pitfalls) in the long run.
IRS Streamlined Filing Compliance Procedures
The IRS Streamlined Filing Compliance Procedures are a lifeline for U.S. taxpayers, especially those living abroad, who have inadvertently omitted reporting their foreign bank and finances. By using these procedures, taxpayers can correct these oversights and potentially avoid substantial penalties. But eligibility for these procedures requires that taxpayers:
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Have no history of criminal tax or BSA convictions within the last 10 years
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Possess legally sourced funds
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Show cooperation with the examination
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Not have been determined by the IRS to have a fraud penalty for underpayment related to the foreign accounts.
Criminal Penalties and Mitigating Factors
Unfortunately, the consequences of failing to file an FBAR can be quite severe. Willfully failing to file an FBAR can lead to fines up to $250,000 and/or imprisonment for up to 5 years, with higher penalties possible if the violation accompanies other illegal activities. Non-willful violations are subject to penalties up to $15,611 per violation, and willful violations face up to $156,107 per violation. But remember, penalties may be waived if all taxes from the foreign account were properly reported, and paid, and the delay is deemed reasonable.
FBAR Help and Resources
Although understanding FBAR can be complex, numerous support resources are available. There are numerous resources and assistance available to help you comply with these requirements, including professional services, government agencies, and online resources.
Whether you’re experiencing technical difficulties while e-filing your FBAR or need guidance on how to fill out the forms, help is just a phone call or email away.
Tax Professionals and Expat Tax Services
Tax professionals specializing in expatriate tax issues and FBAR compliance can provide valuable assistance for U.S. taxpayers with international financial activities. These professionals, like attorneys, CPAs, or enrolled agents, must register as BSA E-Filers before they can file an FBAR on behalf of a client.
Additionally, there are services like Expat EZ that offer consulting and preparation services tailored for individuals facing overseas tax considerations.
Online Resources and E-Filing Help Desk
For those comfortable handling the FBAR process independently, the BSA E-Filing System provides a plethora of resources. The system’s Help Desk is the go-to resource for both operational and technical assistance with the FBAR E-Filing process. Whether you need help with system navigation, form completion, or resolving technical glitches, the BSA E-Filing Help Desk is there to ensure a smooth and successful filing process.
Summary
Navigating the FBAR filing process can be a complex journey, but with the right knowledge and resources, it doesn’t have to be daunting. Compliance with FBAR is not just about fulfilling a legal requirement – it’s about safeguarding your financial well-being and staying on the right side of the law. Remember, when it comes to FBAR, knowledge is power, and staying informed can help you avoid potential pitfalls and penalties.
How we can help you
At H&CO, our experienced team of tax professionals (CPAs) understands the complexities of income tax preparation and is dedicated to guiding you through the process. With excellent service and a personalized approach, we help you navigate US and international income tax laws, staying up to date with the latest changes.
With offices in the US in Miami, Coral Gables, Aventura, Fort Lauderdale, Orlando, Melbourne, and Tampa as well as offices in over 29 countries, our CPAs and International Tax Advisors are readily available to assist you with all your income tax planning, tax preparation and IRS representation needs. To learn more about our accounting firm services take a look at our individual tax services, business tax services, international tax services, expatriate tax services, SAP Business One, entity management, human capital and audit and assurance services.
Frequently Asked Questions
Who is required to file FBAR?
If you are a United States person with financial interest or signature authority over bank and financial accounts, you must file an FBAR if the aggregate value exceeds $10,000 at any time during the calendar year.
What are the key terms associated with FBAR?
The key terms associated with FBAR include signature authority, financial interest, U.S. persons, and foreign financial accounts, allowing individuals to better understand the requirements and regulations related to foreign accounts and reporting foreign banks and financial institutions.
How do I file an FBAR?
To file an FBAR, you need to electronically submit FinCEN Form 114 through the BSA E-Filing System. It's the most efficient way to meet the requirement.
When should I file an FBAR?
You should file an FBAR by the standard due date of April 15, with an automatic extension granted until October 15. Reporting foreign bank and financial accounts on time is a must to prevent penalties.
What happens if I fail to file an FBAR?
If you fail to file an FBAR, you could face significant penalties, including fines and potential imprisonment. It's important to take advantage of assistance programs like the IRS Streamlined Filing Compliance Procedures to rectify overdue filings and potentially reduce penalties.
