Reporting Foreign Bank Accounts (2018) – IRS Reporting of Accounts
If you are a US person, and you have bank accounts or other financial accounts abroad or overseas (a.k.a. foreign bank accounts or foreign accounts), you may recently learned, or stumbled upon the acronym FBAR.
It is important for U.S. Taxpayers to follow IRS Reporting Rules when it comes to Foreign Bank Accounts — in order to avoid IRS fines and penalties.
Reporting Foreign Bank Accounts
FBAR is the Report of Foreign Bank and Financial Account form and it is a very important form.
Because if you have more than $10,000 in annual aggregate total in foreign accounts on any day of the year, you have annual requirement to file the form in that year.
Moreover, the IRS is authorized to issue penalties which can range from a warning letter in lieu of penalties all the way up to 100% value of the foreign accounts in a multiyear audit scenario in which the IRS believes you were willful.
As you get ready to prepare your FBAR, please keep the following in mind:
Who or What is a U.S. Taxpayer?
This question can get more and more complex depending on who you speak to and what the context of the question is. To that end, if you are either a U.S. citizen, Legal Permanent Resident, or Foreign National Subject to US tax such as a visa holder (if you meet the Substantial Presence Test), then you should most likely file the annual FBAR form.
There are actually many categories and subcategories of U.S. persons. For the most part, excluding corporations and other businesses, the following individuals are considered to be a US person:
- U.S. Citizen.
- Legal Permanent Resident
- Foreign National who meets the Substantial Presence tTest
- Former Legal Permanent Resident who did not properly expatriate
*If you are unsure whether you should file the form or not, you should speak with an experienced International Tax Lawyer to evaluate your particular situation.
What Types of Accounts must be Reported on an FBAR?
Essentially, any account that is maintained at a foreign financial institution must be reported on the FBAR – but this does not mean every income generating asset has to be included. Here’s an example: if you have a Foreign Bank Account at a Foreign Financial Institution it has to be reported on the FBAR. Conversely, if you have a foreign rental property that is earning foreign rental income, while the foreign rental income must be reported on your tax return, and the account in which the income that is generated is placed into must be reported (assuming you otherwise meet the FBAR filing requirements) — the home itself does need not be reported on the FBAR.
Is it more than $10,000 per account, or in Total?
An FBAR is required to be filed when a person or business (explained below) has an annual aggregate total of foreign accounts that exceeds $10,000 on any day throughout the year. It does not matter if all that money is in one account or if a person had 11 accounts with $1000.00 in each account. Once your overseas foreign accounts exceed $10,000, it is now time to report all of the foreign accounts.
You are required to report the maximum balance throughout the year. If you do not have the maximum balance available, you can mark the box that notes the Max balance is unavailable — or alternatively you can use the best value you have, and then note that information on the FBAR.
The Money is from an Inheritance
It is important to remember that the FBAR is a reporting form. In other words, the Department of Treasury wants to know whether you have the money overseas — so that the DOT can track it. The source of the money is less important to the degree that the Department of Treasury does not really care whether you received it from an inheritance, whether you earned it overseas, or whether you have full access to that money at the current time – for FBAR purposes at least. Rather, they just want to know where the money is being held in whose name is associated with the account.
Thus, even if the money was inherited, you are required to report the account information on the FBAR. If you fail to do so and get stuck in the IRS/DOT crosshairs as a result of the foreign financial institution reporting the account in accordance with FATCA, it will be much harder to explain the situation at that time versus simply filing the FBAR timely or entering into OVDP or the Streamlined Program.
Reporting on the FBAR vs. Paying Tax on the Money
This is a question we receive often, and so a distinction must be made. Just because you are reporting a foreign account on an FBAR does not mean there is a taxable event taking place. For example, the money may have been inherited, received as a gift and/or earned with income tax already having been paid on the earnings.
Thus, the key issue to remember with an FBAR is that the FBAR is a reporting requirement for you to update the Department of Treasury with your foreign accounts that you maintain overseas; it has nothing to do with whether there is a taxable event taking place.
Remember, the FBAR is a “Reporting” requirement for purposes of “Disclosure.”
Can If I file a Late FBAR Statement?
This is a very complex issue. Technically, you are not allowed to file a late FBAR statement. There is some exception for direct filings in situation where there is no unreported income. Other people submit a Quiet Disclosure (in which they secretly file prior FBARs and amended tax returns) which can result in extremely high fines and penalties.
The Internal Revenue Service a Department of Treasury are taking foreign account compliance very seriously and it is a major priority for the IRS. If you have not filed your FBAR statements, you should work to safely get into compliance.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.