Understanding FBAR Requirements for U.S. Taxpayers with Foreign Bank Accounts
If you have a foreign bank account and you're a U.S. citizen or resident, you might need to file the Foreign Bank Account Report (FBAR) — an important part of ensuring tax compliance. But what exactly is FBAR, and why does it matter?
FBAR refers to the Report of Foreign Bank and Financial Accounts required by the U.S government under the Bank Secrecy Act (BSA) and it is reported on Financial Crimes Enforcement Network (FinCEN) Form 114. The most common types of accounts that are reportable are bank accounts and brokerage/investment accounts. FBAR also includes other different types of financial accounts such as foreign life insurance policies, mutual funds and ETFs (Exchange-traded funds), pension plans and even safety deposit boxes depending on who may have access to the box.
It must be filed annually by U.S. persons (citizens, residents, and entities) who have financial interests in or signature authority over foreign bank accounts. The FBAR has a single threshold - It is required in any year that the U.S person has more than $10,000 in annual aggregate total in all the foreign accounts combined at any time during the calendar year reported. This is a cumulative balance, meaning if you have 2 accounts with a combined account balance greater than $10,000 at any one time, both accounts would have to be reported. A U.S. person includes a citizen, resident, corporation, partnership, LLC, trust and estate.
Most people may not be aware that even if it is a joint account with a non-resident alien, the taxpayer who is a U.S. person and has ownership/signature authority of the account is still required to file the FBAR. It does not matter whether the taxpayer resides in the US or abroad. Most importantly, one may need to file an FBAR even without the need to file a tax return!
Filing Requirements for FBAR:
The FBAR is an annual report, due April 15 following the calendar year reported and is filed electronically and directly online through the FinCEN BSA E-filing system. It is not a tax form but a compliance document for the U.S. Treasury Department, which is why it not filed as part of your federal tax return through the IRS. You are allowed an automatic extension to October 15 if you fail to meet the 4/15 date.
Consequences of not filing FBAR:
The IRS has the authority to enforce FBAR penalties for filing late, filing inaccurate information, or not filing at all. The severity of the penalties depends on whether your failure to file was willful or non-willful. Non-willful violations can result in fines up to $10,000 per violation. While willful violations (i.e. intentional failure to file) can lead to fines up to $100,000 of 50% of the account balance, whichever is higher, along with possible criminal penalties, including prison time.
The FBAR filing is crucial for U.S. taxpayers with foreign bank accounts. Failing to comply can result in severe penalties, so ensure you stay on top of your reporting obligations to avoid costly mistakes.
If you're unsure whether you need to file FBAR, or need assistance with the process, reach out to a tax expert at WBL CPA+ Advisors!