As a U.S. person* living abroad, you might think that what you have in the bank overseas is none of the U.S. Government’s business. But you would be wrong; unfortunately, it is their business to know, even if the money is attracting zero percent interest or part of your “emergency only” fund.
FBAR stands for Foreign Bank Account Report, and completing FinCen form 114 – Report of Foreign Bank and Financial Accounts has to be undertaken every year by:
1. Any U.S. person* who has had any financial interest in, or signature authority, over a financial account located outside of the United States; and
2. where the aggregate value of all foreign financial accounts exceeds US$10,000 at any one time during the reporting year.
Figuring out the aggregate value of your accounts and which ones you have to report on can take time. Time which I am sure you would rather spend doing something else. As certified Tax Accountants, we can complete the reporting for you, but before you click here to arrange a free 15-minute assessment of your needs, read on to learn a little bit more about the FBAR and what is required to complete the return.
Filing an FBAR has no impact on your tax obligations.
The U.S. Government simply wants to keep tabs on where all the money is in the world and how many Americans have it. There are also some exceptions to having to file an FBAR. These exceptions include:
- Certain foreign accounts jointly owned by spouses; even if the spouses are non-U.S. persons.
- United States persons included in a consolidated FBAR.
- Foreign accounts owned by a governmental entity or an international financial institution
- Certain individuals with signature authority over but no financial interest in a foreign account.
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust).
- Foreign accounts maintained in an overseas United States military banking facility.
Penalties for not filing
Previously, the IRS wasn’t too bothered if you didn’t let them know, but since 2010, it has become mandatory to file, and penalties apply if you don’t. Penalties range from US$12,921 for non-willful (you honestly didn’t know) to $129,210 or 50% of the balance of your account if you willfully failed to file. But, it is not all bad news; you can apply for forgiveness if it was a genuine oversight on your part through two amnesty programs.
What information is required to file an FBAR?
To complete the FBAR – FinCen form 114, you will require the following information:
- Your address, date of birth and social security number.
- The names and addresses of the banks and institutions outside of the States that keep your funds.
- Your account numbers and type of account held, e.g., securities, bank, pension.
- The balance of your account when it was at its highest value during the tax year (using the exchange rate as of December 31 of that tax year).
- Any co-owner of the account and, if so, their name, address and social security number.
When does an FBAR have to be filed?
The FBAR is filed annually on or before April 15. If you miss the deadline, an automatic extension is given to October 15. There are no further extensions after October unless you go through the amnesty process, and penalties may apply. Filing is completed online through FinCen’s BSA E-filing system. While the FBAR is not filed simultaneously with your federal tax return, as tax professionals, we have the software capability to file it at the same time.
Do I need to file anything else at the same time as the FBAR?
Because foreign banks were under no obligation to let the U.S. Government know if an American person held a financial account with them (they may still have done so voluntarily), it was difficult for the IRS to track down ‘willful’ non-filing of FBARs. That is until the Foreign Account Tax Compliance Act (FATCA) was enacted in 2010. FATCA requires any individual or business with foreign accounts, and who meet the reporting threshold of US$50,000 to file a Form 8938 annually.
Form 8938 differs from the FBAR in that it is filed as part of your tax return and the reporting threshold is higher. FATCA also legally requires all foreign financial institutions to let the IRS know which U.S. taxpayers hold financial accounts with them.
Ensuring you fulfill all of the requirements of the FBAR and FATCA can take time. We have the knowledge and experience to make this process easy, ensuring your obligations to the IRS are filed on time and are accurate.
* A U.S. person is a citizen, resident alien, trust, estate, or domestic entity.