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FBAR - What US Persons Need To Know

Expat Briefing Editorial Team
08 June, 2015


This article outlines what Americans with foreign bank accounts must do to stay on the right side of the law under FBAR, with the June 30 filing deadline approaching fast.


Introduction

If you are a "United States person" and have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act (BSA) may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).


Who Must File An FBAR?

United States persons are required to file an FBAR if: they had a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all foreign financial accounts exceeded USD10,000 at any time during the calendar year reported.


What's A United States Person?

"United States persons" include: US citizens; US residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.


What's A Foreign Financial Account

For the purposes of FBAR, a foreign financial account is any financial account located outside the US or an account maintained with a branch of a US bank that is physically located outside of the US, including securities, brokerage, savings, demand, checking, deposit, time deposit or other accounts maintained with a financial institution.

A financial account also includes a commodity futures or options account, an insurance policy or annuity policy with a cash value, and shares in a mutual fund or similar pooled fund. In addition, a debit card account is a financial account, and a credit card account may be treated as a financial account under certain circumstances.


Exemptions

There are FBAR filing exceptions for the following United States persons or foreign financial accounts. These include:

  • Certain foreign financial accounts jointly owned by spouses;
  • United States persons included in a consolidated FBAR;
  • Correspondent/Nostro accounts;
  • Foreign financial accounts owned by a governmental entity;
  • Foreign financial accounts owned by an international financial institution;
  • Owners and beneficiaries of US IRAs;
  • Participants in and beneficiaries of tax-qualified retirement plans;
  • Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
  • Trust beneficiaries (but only if a US person reports the account on an FBAR filed on behalf of the trust); and
  • Foreign financial accounts maintained on a United States military banking facility.


What If The Foreign Bank Account Produces No Income?

Even under these circumstances, a person who holds a foreign financial account may have a reporting obligation. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.


When And How Should FBAR Be Filed?

The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN's BSA E-Filing System.

The FBAR is not filed with a federal tax return. When the Internal Revenue Service grants a filing extension for a taxpayer's income tax return, it does not extend the time to file an FBAR. There is no provision for requesting an extension of time to file an FBAR.

The BSA e-Filing System provided by FinCEN now has an alternative method for individuals, under which filers can now choose between the current method of filing using an Adobe PDF or use the new online form that only requires the use of an internet browser.

Under the existing method, filers can begin to prepare their FBARs but work at their own pace. Saving their progress locally, they can resume preparation at a later time without losing data previously entered in the PDF form. Internet access is only required once they are ready to submit their FBARs. The form may also be reused to edit and resubmit an amendment, eliminating the need to re-key the entire report.

However, under the new alternative method, filers will need to have gathered all information needed to complete their FBARs and must be prepared to file in a single sitting. The online form does not allow progress to be saved during form completion.

Only after submission will filers have an opportunity to download a read-only copy of their FBARs for record keeping purposes. If there is a need to amend an FBAR for any reason, the downloaded copy will not be available for re-submission.


Are There Penalties For Failure To File An FBAR?

Yes. Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed USD10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of USD100,000 or 50 percent of the balance in the account at the time of the violation, for each violation. 

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your US tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.




 

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