Report of Foreign Bank and Financial Accounts (FBAR)
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). See the ‘Who Must File an FBAR’ section below for additional criteria.
Current FBAR Guidance
On September 30, 2013, Financial Crimes Enforcement Network (FinCEN) posted, on their internet site, a announcing FinCEN Form 114, Report of Foreign Bank and Financial Accounts (the current FBAR form). FinCEN Form 114 supersedes TD F 90-22.1 (the FBAR form that was used in prior years) and is only available online through the BSA E-Filing System website.
On July 29, 2013, FinCEN posted a notice on their internet site that introduced a new form to filers who submit FBARs jointly with spouses or who wish to have a third party preparer file their FBARs on their behalf. The new FinCEN Form 114a, Record of Authorization to Electronically File FBARs, is not submitted with the filing but, instead, is maintained with the FBAR records by the filer and the account owner, and made available to FinCEN or IRS on request.
Filing deferral for certain individuals with signature authority only, effective through June 30, 2015
Who Must File an FBAR?
United States persons are required to file an FBAR if:
The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.
United States person refers to U.S. citizens (including minor children); U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States United States Person. A United States resident means an alien residing in the United States. To determine if the filer is a resident of the United States apply the residency tests in 26 U.S.C. section 7701(b).
Exceptions to the Reporting Requirement
Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:
Certain foreign financial accounts jointly owned by spouses;
United States persons included in a consolidated FBAR;
Foreign financial accounts owned by a governmental entity;
Foreign financial accounts owned by an international financial institution;
IRA owners and beneficiaries;
Participants in and beneficiaries of tax-qualified retirement plans;
Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust); and
Foreign financial accounts maintained on a United States military banking facility.
Review the FBAR instructions for more information on the reporting requirement and on the exceptions to the reporting requirement.
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. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. The FBAR is not filed with a federal tax return. A filing extension, granted by the IRS to file an income tax return, does not extend the time to file an FBAR. There is no provision to request an extension of time to file an FBAR.
If a person who is required to file an FBAR fails to timely file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for nonwillful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation.
A U.S. Taxpayer Holding Foreign Financial Assets May Be required to File Form 8938. Taxpayers with specified foreign financial assets that exceed certain thresholds ($50,000 for single and $100,000 for Married Filing Jointly for people living in the US) must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. The new Form 8938 filing requirement is in addition to the FBAR filing requirement. A chart providing a comparison of Form 8938 and FBAR requirements may be accessed on the IRS Foreign Account Tax Compliance Act web page.
For assistance with filing your FBAR reports, disclosing undeclared foreign bank accounts (offshore voluntary disclosure program, OVDP), Foreign Account Tax Compliance Act (FATCA), tax preparation, tax planning, and the IRS representation, contact Zaher Fallahi, Los Angeles FBAR Attorney and Orange County FBAR Attorney, California Tax Attorney, US Tax Attorney, CPA at (310) 719-1040 (Los Angeles), ( 714) 546-4272 (Orange County) or e-mail : [email protected]