What is an FBAR?

In the Streamlined Filing post of this blog on November 4 2016, I mentioned the 6 year FBAR filing requirements. You may be wondering, what is an FBAR?

Certain foreign investments beyond $10,000 have very specific requirements with the IRS.
Certain foreign investments beyond $10,000 have very specific requirements with the IRS.

An FBAR, or Form 114 “Report of Foreign Bank and Financial Accounts” is required to be filed annually by all U.S. citizens or residents who have greater than $10,000 USD in reportable foreign bank and financial accounts any time during the year. (https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar [accessed 12/9/16]).

The definition of ‘reportable foreign bank and financial accounts’ is very broad. For example, any savings accounts, checking accounts, brokerage accounts or any other account maintained in a financial institution outside of the U.S. would be included. It includes accounts that the taxpayer has only signature authority on.

As you can imagine, if you live outside the U.S., this $10,000 USD threshold is easy to exceed very quickly. In my experience, for U.S. citizens living outside the U.S., the FBAR is the most common filing requirement. It was even more common than having to file a U.S. tax return. Remember that there are minimum income filing requirements for filing a U.S. return. So even if a homemaker living in a foreign country does not have a U.S. tax filing requirement, they usually were joint owners with their spouse on bank accounts that caused them to have to file an FBAR.

FBARs are the most common filing requirement, but they also have some of the most stringent penalties for non-compliance. The penalties can be as much as $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.” (https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar [accessed 12/9/16]).

Along with FBAR filing, The Foreign Account Tax Compliance Act (FATCA) also requires certain U.S. taxpayers holding foreign financial assets to report these assets on Form 8938 Statement of Specified Foreign Financial Assets (https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-u-s-taxpayers [accessed 12/9/16]). The reporting thresholds are higher than the FBAR threshold (thresholds start at $50,000 USD). There are slight differences in reporting on the Form 8938 vs the FBAR reporting requirements (for example, accounts in which a taxpayer has signature authority only are not reported on the Form 8938, but are reported on the FBAR).

To add to the complexity, FBARS do need to be e-filed through FinCEN (Financial Crimes Enforcement Network). Plus, the due dates for FBARS have changed this reporting year (for the 2016 tax filing year). In prior years, FBARs were due on June 30. They are now due on the due date of most taxpayer’s tax returns (April 18, 2017 for the 2016 tax year). FBARs can now be extended with the U.S. tax return.

Do you need help on your U.S. tax returns? Please contact CPA WorldTax for help and support at taxinfo@cpaworldtaxllc.com.

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