FBAR for Corporations, Trusts & Partnerships: Entity Reporting

FBAR for Corporations, Trusts & Partnerships: Entity Reporting

FBAR for Corporations

FBAR for Corporations: One very confusing aspect about the FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114) is that it is often mentioned along with the U.S. Persons. But, U.S. Person does not mean U.S. Individual. Corporations are a type of U.S. Person, and this there are FBAR rules for Corporations and other entities, such as partnerships, joint ventures, etc.

The IRS requires U.S & Foreign Corporations or other businesses with foreign accounts, assets & investments to still file an FBAR. The IRS requires all U.S. persons with offshore accounts, assets, & investments to file an annual FBAR, when they meet the threshold filing requirement.

Technically, a corporation is considered a “person” — it does not have to be an “individual.” Even if the account is only used to hold or exchange local currency, FBAR is still required.

The Internal Revenue Service has increased enforcement of FBAR Filing Rules. The failure to file a timely and complete FBAR may result in non-willful or willful civil FBAR penalties — or even Criminal FBAR penalties (although the latter is much less common).

Who Is a U.S. Person?

A U.S. person can typically be broken down into two (2) categories:

Individuals

When it comes to international tax and foreign/offshore IRS, FBAR and FATCA Reporting, one of the biggest sources of confusion (understandably) is who is considered a US person. 

When dealing with individuals, a U.S. person is typically going to include:

  • U.S. Citizens
  • Legal Permanent Resident; and
  • Foreign Nationals who meets the Substantial Presence Test.

Businesses

An Additional category of U.S. person that most people overlook is U.S. Businesses, including Corporations, Partnerships, and other U.S. businesses. 

A U.S. is considered a U.S. person, and if a U.S. business has foreign accounts, then it may have to file an FBAR if the reporting threshold is met.

Which Businesses Report the FBAR?

A U.S. business is considered a US person and the FBAR requirement is for U.S. persons – not merely U.S. “individuals.”

If a business is considered a U.S. Person then the business is also required to file an FBAR when business has foreign accounts overseas and meets the “more than $10,000 in annual aggregate total” threshold.  

Even if the foreign account is in the name of the U.S. Business, and not an individual, the U.S. Person business must still “FBAR Report” the account.

As provided by the IRS:

United States persons are required to file an FBAR if:

United States person includes U.S. citizens; 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

Golding & Golding – Common FBAR Business Examples

Corporation

A U.S. corporation begins to conduct business outside of United States.  In many countries it is easier and almost necessary for a U.S. person to open a foreign bank in order to make purchases in local currency, pay vendors, contractors, etc. Therefore, the corporation opens a corporate account in the foreign country.

As a result, the U.S. corporation is required to file the FBAR.

Partnership

A U.S. partnership decides it is less expensive to operate solely as a U.S. partnership and expand by securing registered agents in many different countries. Despite the fact that it is still a U.S. partnership that does not have any foreign entities associated with the partnership, the partnership still must disclose any foreign accounts that the partnership has in any one of the countries.

Employee of the Corporation

David is an employee of the corporation and has signature authority over the account. Even though none of the money personally belongs to David, David is an employee of the company who has signature authority over the foreign account. Therefore David is required to complete the FBAR portion relating to signatories (some exceptions apply)

Trust

A US trust has beneficiaries outside of the United States. In order for the trust to make payments beneficiaries outside of the United States, the trust opens foreign bank accounts outside of United States.

As a result, the US trust is required to disclose foreign bank accounts on an FBAR – even though the trust is a US trust.

** The trust can avoid having to file a form 3520-A if it a US trust, but would still have to file the FBAR.

U.S. Individual with a Foreign Business

This is a common situation. For example, Peter owns multiple rental properties in Latin America.  He owns the companies in a Sociedad Anonima. He is a 90% owner of the business with a local registered agent serving as the other 10% owner.

The foreign corporation has multiple accounts and Peter is the majority owner of the foreign corporation. Since Peter has signature authority over the accounts, he is required to report the accounts, even though he has never stepped foot into the foreign financial institution.

Unreported Foreign Accounts

If you had and FBAR filing requirement but have not filed the FBAR in one or more years, you may consider getting into compliance through One of the approved FBAR Amnesty IRS voluntary disclosure programs.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance with getting compliant.