FBAR Requirements – Who Must File an Annual FBAR & How?
If you have foreign bank and/or financial accounts and meet the threshold requirements for filing, you may have an IRS FBAR filing responsibility (aka FinCEN 114).
This particular form is not included with your tax tax return; rather, it is filed separately from your tax return, even though the form is due to be filed in accordance with the time to file your U.S. tax return.
The FBAR form is electronically filed. Therefore, you cannot submit a paper copy of the FBAR as was permissible in prior years.
The form can be accessed here.
Is it Hard to Complete?
If you have a bank account or two, it is usually not that bad. If you have multiple accounts, investment accounts, foreign life insurance, etc. it may be more difficult.
And, the difficulty is only compounded by the fact that you may have several other international reporting forms to file as well.
How do I know Which Forms to File?
The following is a brief introductory analysis to help determine if you may have an FBAR Form filing requirement:
Common Foreign Account Tax Jargon
These are the common acronym basics for non-attorneys, non-CPAs, and non-tax professionals
Foreign Bank Account Reporting. But, since it includes more than than accounts, it is generally referred to as “Report of Foreign Bank and Financial Account Form.”
Financial Crimes Enforcement Network. It sounds much more evil than it actually is. FinCEN Form 114 is actually the technical term for FBAR.
Foreign Account Tax Compliance Act. For individuals, it generally refers to either form 8938, which is part of your U.S. tax return, or when you receive a FATCA Letter from a Foreign Financial Institution (FFI).
Passive Foreign Investment Company. This refers to certain investments that a person has oversees, and includes foreign mutual funds (where many unsuspecting U.S. Taxpayers get snagged). The PFIC calculation is very complicated.
Step 1 – Do You Have a Foreign Account?
Accounts include a laundry list of different items, including investment accounts, foreign life insurance, foreign retirement funds, and foreign provident accounts. You should make a list of ALL your accounts.
Step 2 – Do you Own the Foreign Account or have Signature Authority?
Depending on whether you own the foreign accounts, or just have signature authority over the account(s) will help determine where and how to report the accounts — and whether it also needs to be reported on FBAR, form 8938 (interest in the account vs. signature authority) and other forms.
Step 3 – What is the Value of the Foreign Accounts?
You should use whichever exchange rate you prefer for the actual year in which you’re performing the analysis. So if you’re analyzing for 2014 — you would use 2014 exchange rates, not the current year rates.
Step 4 – Categorize the Foreign Accounts you have
You should separate the accounts by type, value, and whether you have ownership or signature authority over the account.
Step 5 – What Currency are the Foreign Accounts in?
In many countries, foreign financial institutions maintain multiple “currency sub-accounts” within the accounts, and the accounts may be in different currencies (common in Hong Kong and Taiwan)
For example, since the exchange rate for the HKD dollar and CNY are similar, but the exchange rate for the Taiwanese dollar (TWD) is much different, it is important to calculate the exchange amount properly to avoid over reporting or underreporting.
As you begin aggregating your account values, it is important to know which forms you may have to file.
Do You File the FBAR?
If you have foreign accounts that you have either ownership or signature authority over, and the annual aggregate total in any given years, exceeds $10,000 in US dollars using that specific year’s exchange rate – you may have an FBAR Reporting Requirement.
Do You File FATCA Form 8938?
If you have foreign assets/accounts that exceed any of the Form 8938 thresholds, you may have a form 8938 filing requirement as well.
There are four main thresholds for individuals is as follows:
- Single or Filing Separate (in the U.S.): $50,000/$75,000
- Married with a Joint Returns (In the U.S): $100,000/$150,000
- Single or Filing Separate (Outside the U.S.): $200,000/$300,000
- Married with a Joint Returns (Outside the U.S.): $400,000/$600,000
If you have foreign investment accounts, addition to the value, you also have to determine whether the investment is considered a PFIC.
This will help to determine what your tax liability will be, and whether you have to report the accounts on a form 8621 or not, and whether or not you have to perform an excess distribution calculation or not
Schedule B is not based on any value of the accounts. Question 7 simply asks whether or not you own foreign accounts, or if you have signature authority over foreign accounts.
Chances are that if you made it this far into our article, you probably have at least one foreign account.
Step 6 – Aggregate Your Account Values, By Type
Calculate the total amount of each type of account and whether you own it, or have signature authority over it to determine the total value.
Step 7 – Determine Which Forms You Have to File
Refer to the list of forms above to determine which forms you have to file (note: you may have other forms to file as well)
Step 8 – Did You Have to Report in Prior Years? – Very Important
Determine whether you have met the requirements in prior years as well, and review your prior returns to assess if you were in compliance during those prior years as well.
*Generally, the compliance period is 3-6 years.
Step 9 – Check if the Current Year is the First Year You Had to File
If this is the first year you have to file, you are in luck.
Presuming you are timely, as long as you give it your best effort and perform a diligent and reasonable completion of the forms, usually that will be sufficient.
Step 10 – You Missed Prior Year Reporting
If you come to the realization that you are out of compliance for prior years, then you should STOP.
Before submitting for the current year you are required to go back and get into compliance for the prior years using one of the approved IRS offshore voluntary disclosure/Tax Amnesty Programs.
While the IRS is done away with OVDP, other programs are still available such as
- Traditional IRM Voluntary Disclosure
- Streamlined Disclosure
- Reasonable Cause
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.