As US citizens and residents with financial accounts overseas, there are certain reporting requirements you need to be aware of. One of the most important is filing the Report of Foreign Bank and Financial Accounts or FBAR. An FBAR reports foreign financial accounts that you own or have signing authority over. The US government requires citizens and residents to report these foreign accounts to help combat tax evasion, money laundering, and other illicit activity. In this article, we’ll discuss what FBAR is, who needs to file it, and how a tax accounting firm can help you stay compliant.
What is FBAR?
An FBAR (Foreign Bank Account Report) is a form required by the United States Department of Treasury to be filed by US taxpayers who hold foreign bank accounts located outside of the United States. The purpose of the FBAR is to help the government track the movement of money to and from foreign countries and to ensure that US taxpayers are reporting all their income, including income earned abroad.
The FBAR filing requirement was introduced in 1970 as part of the Bank Secrecy Act (BSA) to combat money laundering and other financial crimes. Since then, the filing requirements have expanded to include a wider range of financial accounts, including brokerage accounts, mutual funds, and even cryptocurrency wallets.
Who Needs to File FBAR?
US taxpayers who have a financial interest in or signature authority over one or more foreign financial accounts must file an FBAR if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. This includes US citizens, US residents, and certain nonresident aliens.
Foreign financial accounts include not only bank accounts, but also other types of financial accounts, such as investment accounts and certain types of insurance policies. Even if you only have signature authority over a foreign financial account and do not have an ownership interest in the account, you may still be required to file an FBAR.
How to File FBAR?
FBARs must be filed electronically on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). FinCEN Form 114 replaced the previously used Form TD F 90-22.1. Filers will need details on each foreign financial account, including the maximum value of each account during the year and account numbers. FinCEN Form 114 can be found on FinCEN’s BSA E-Filing System.
FBAR Filing Deadline and Penalties for Non-Compliance
FBARs must be filed electronically on FinCEN Form 114 by April 15 of the following calendar year. For example, you must report your foreign accounts for 2022 by April 15, 2023. However, an automatic six-month extension is available for taxpayers who fail to meet this deadline.
Penalties for failing to file an FBAR can be severe. The penalties vary depending on the circumstances but can be as high as $100,000 or 50% of the balance in the account at the time of the violation. In some cases, criminal penalties can also apply.
Streamlined Filing Compliance Procedures
The Streamlined Filing Compliance Procedures may be available for those who have failed to file FBARs in the past due to being unaware of the filing requirement. With these procedures, US persons can achieve compliance with their FBAR filing requirements without incurring significant penalties.
Other Forms You May Need to File
In addition to FBAR, US taxpayers with foreign financial accounts may also be required to report the accounts on Form 8938, Statement of Specified Foreign Financial Assets. Form 8938 is filed with the taxpayer’s federal income tax return and has different filing thresholds and reporting requirements than FBAR.
It is important to note that the FBAR is not the same as reporting foreign income on your tax return. While the FBAR is used to report foreign financial accounts, you must also report any income earned from those accounts on your tax return. Failure to report foreign income can also result in penalties.
Conclusion
For most taxpayers, the FBAR process is quite straightforward. However, if your foreign accounts are complex or extensive, it may be advisable to seek help from a tax professional to ensure your FBAR filing is complete and accurate. While the FBAR rules can seem burdensome at times, keep in mind that honest and transparent reporting is expected and required by law. By following the guidelines and filing consistently year after year, the FBAR becomes just another administrative task to handle.
