A Detailed Look at the Foreign Bank Account Report (FBAR form)
If you are an American Citizen or Green Card Holder working overseas, it is your responsibility to file an annual US expat tax return with the Internal Revenue Service (IRS) and report your foreign accounts in excess of $10K to the Department of Treasury (DOT).
Some US Citizens and Green Card Holders who are working overseas are not aware of their requirement to file a US income tax return with the Internal Revenue Service (IRS) or to report their foreign financial accounts valued at $10K or more with the Department of Treasury (DOT). To report your foreign financial accounts, you must fill out a Foreign Bank Account Report (FBAR). You must file your FBAR (otherwise referred to as FinCEN 114) online at the Financial Crimes Enforcement Network (FinCEN).
The FBAR dates back to 1970 when it was created as a portion of the Bank Secrecy Act. The intention of FBAR was to limit tax evasion. The FBAR was around for years without much enforcement, but in recent years the United States government has been increasing its efforts to investigate tax evasion and prosecute those who have failed to comply with the FBAR reporting requirements.
If you are a US Expat or you have foreign bank account(s) of at least $10K or more, you are required to file an FBAR every year. In this piece, we will take a look at how you are affected by FBAR and what to do if you have become delinquent in previous years.
You are required to file an FBAR form if you are a “United States person” and the total aggregate balance of your foreign financial accounts meets or exceeds $10K – even if it was just one day out of the year.
Before we examine the details of the filing requirements, it’s important to understand what the IRS means by a “United States Person”. The IRS defines a “US Person” as being a citizen or resident alien of the United States. It also states that domestic entities, estates and trusts are also considered “US Persons”.
The $10K filing threshold applies if you maintain a foreign financial account which has reached or exceeded $10K at any point during the year – even if it was $10K or more for only one day. Another important point to understand is that your requirement to file FBAR applies to all of your foreign financial accounts combined. This means that if you have $3,500 in one account and $7K in another account, you will be required to file an FBAR since the total aggregate of your combined foreign financial accounts exceeds $10K.
If you are a joint account holder, you are still required to file an FBAR. You are also required to file an FBAR if you have any financial interest or if you have signature authority over one or more foreign financial accounts.
You will be required to provide detailed information about your foreign financial account(s), and you can ensure you’re able to provide accurate information by keeping a concise record of your foreign financial account activity.
The information that you will be required to report on FinCEN Form 114 includes:
- The name(s) on each foreign financial account
- The foreign financial account number
- The type of foreign financial account
- The address and name of the foreign financial institution (FFI) at which the account is held
- The highest value that was reached in your foreign financial account during the year for which you are reporting.
Remember that you must convert your foreign currency to USD in accordance with the exchange rate at the end of the reporting period.
The FBAR is filed with the DOT – not the IRS. The filing deadline for the FBAR is different than that of your US expat tax return.
The filing deadline for your FBAR (as of 2016) is April 15 of every year. There are extensions available until Oct 15. There is no longer a paper form for filing an FBAR. All FBARs need to be filed online through the FinCEN website.
You may also be required to file FATCA Form 8938 if you have assets overseas.
FATCA Form 8938 is required if you have at least $50K worth of financial foreign assets. Unlike the FBAR, FATCA Form 8938 is filed together with your US tax return.
Penalties for failure to file an FBAR can be steep. It’s best to file your FBAR every year to avoid facing these sometimes severe penalties.
FBAR noncompliance penalties can result in both civil and criminal charges. If you were unaware of your requirement to file an FBAR and your noncompliance was ‘non-willful’, you may be charged a financial penalty ranging from $500 to $10K for each account you failed to report. For non-willful noncompliance, criminal charges will not be filed. Non-willful means that you were not intentionally hiding money overseas with the intention of evading your taxes.
Willful FBAR noncompliance can result in a fine of up to $100K. Additionally, you may be subject to criminal consequences of 5 years in prison or up to $250K in fines. If you are found guilty of violating other laws, the penalties could go as high as $500K, 10 years in prison, or both.
Through FATCA (Foreign Accounts Tax Compliance Act), the United States government is tracking down US Persons who are hiding money overseas. It is now harder than ever to avoid the DOT and the IRS.
In previous years, it’s been somewhat easy to ignore the requirement to file an FBAR or a US expat tax return. Until recently, it’s been difficult for the IRS to track down noncompliant taxpayers, but with recent development in FATCA this is no longer the case. FATCA now requires FFIs to report all account information for foreign financial accounts held by US Persons. This requirement is currently active dozens of developed countries.
There is still time to get caught up on your delinquent FBARs and/or unfiled tax returns. This opportunity is offered to you by the IRS in the form of the Streamlined Filing Procedures and the Offshore Voluntary Disclosure Program (OVDP).
You may qualify for the Streamlined Filing Procedures which allow you to file back taxes and your FBAR. Through the Streamlined Filing Procedures, all fees and penalties for filing late are waived. You may also qualify for the OVDP for reduced penalties. To find out which of these programs would be better for you, contact a US expat tax professional today.