Foreign Bank Account Report (FBAR)

Important Newsbreak for Expats Who Just Found Out About FBAR and are Considering joining OVDI

• Do You Have a Foreign Financial Account?
• Who Must File an FBAR
• Reporting and Filing Information
• Exceptions to the Reporting Requirement
• About the Form TD F 90.22.1
• Fine-Print IRS Details Regarding FBAR
• What the Wall Street Journal Says
• Final Note

If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund, unit trust, or other types of financial accounts, you may be required to report the account yearly to the Internal Revenue Service. Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (FBAR), if

1. The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country and
2. The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illegal purposes or to identify unreported income kept or earned abroad.

Who Must File an FBAR

United States Person: Under this definition, the term "United States person" means (1) a citizen or resident of the United States, (2) a domestic partnership, (3) a domestic corporation, or (4) a domestic estate or trust.

Reporting and Filing Information

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal income tax return questions (found on Form 1040 of Schedule B, the "Other Information" section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, satisfies the account holder's reporting obligation (Description of all IRS forms can be found on our site here).

The FBAR is not meant to be filed with the filer's federal income tax return. The granting, by the IRS, of an extension to file Federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR must be received by the IRS on or before June 30 of the following year. Account holders who do not comply with the FBAR reporting requirements may be subject to civil penalties, criminal penalties, or both.

Exceptions to the Reporting Requirement

Exceptions to the reporting requirement can be found in the FBAR Instructions. These exceptions include:

1. Accounts in U.S. military banking facilities operated by a United States financial institution to serve U.S. Government installations abroad are not considered to be accounts in a foreign country for purposes of the reporting requirement.
2. An officer or employee of a bank that is subject to the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation, is not required to report having signature or other authority over a foreign account if the officer or employee has no personal interest in the account.
3. An officer or employee of a domestic corporation whose equity securities are listed on a national securities exchange or which has assets exceeding $10 million and 500 or more shareholders of record, is not required to report having signature or other authority over a foreign account if the person has no personal financial interest in the account, and the officer or employee has been advised in writing by the chief financial officer of the corporation that the corporation has filed a current report that includes the foreign account.

More information about Foreign Bank Account Reporting can be found on the IRS web page: FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR) and Filing Requirements. This link also provides details on various forms of foreign financial accounts and explains how to file FBARs for prior years or amend a previously filed FBAR.

There is a temporary exception on FBAR rules for NON-US Persons. Please see IRS Announcement 2009-51 dated June 5, 2009 regarding a temporary exception of FBAR rules for non-US persons.

About the Form TD F 90.22.1

1) The deadline is an ARRIVAL deadline, not a proof of mailed by deadline.

2) If you have multiple accounts that require more than one page, the full form and instructions can be found on the IRS website. If you only require the basic single account version of the form, fill out only the first page.

Further details published by the IRS regarding FBAR can be found at: Workbook on the Report of Foreign Bank and Financial Accounts (FBAR). This document includes details on fines and penalties; they are not pretty.

What the Wall Street Journal Says:

See the latest information on FBARs as reported on July 20th, 2009 in the WSJ:  IRS Gets Tougher on Offshore Tax Evaders. This gives you a sense of the governments attitude toward anyone having an offshore account; you are guilty until you prove you are innocent.

Final Note

FBAR rules have become a major irritant, to be sure, but a fact of expat life. In fact, the government expanded compliance net extends to many more US persons than just expats. Make sure you know your status and your possibility of being required to file such reports.

We strongly suggest using FedEx, DHL or certified mail so you have proof of mailing and proof of arrival by the due date:  June 30th of each year starting with tax year 2009.