- 1 FBAR Filing Requirements
- 2 Who Must File the FBAR?
- 3 ‘US Person’ Defined for Tax Purposes
- 4 Individuals
- 5 Entities
- 6 Estates
- 7 Disregarded Entities
- 8 What About US Territories and Possessions?
- 9 Current Year vs Prior Year Non-Compliance
- 10 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 11 Golding & Golding: About Our International Tax Law Firm
FBAR Filing Requirements
Each year, US taxpayers who have foreign bank and financial accounts overseas may have to file the annual FBAR aka FinCEN Form 114. In recent months, the Internal Revenue Service updated its FBAR publication and developed a Practice Unit to assist taxpayers and IRS agents with understanding the complexities of the FBAR. There are many components to filing an accurate FBAR and the IRS continues to pursue penalties against taxpayers who are non-compliant. For the purposes of this article, we will focus on who needs to file the FBAR.
Who Must File the FBAR?
As provided by the IRS:
“A U.S. person must file an FBAR if they have a financial interest in or signature or other authority over any financial account(s) outside the U.S. and the aggregate amount(s) in the account(s) exceeds $10,000 at any time during the calendar year.
‘US Person’ Defined for Tax Purposes
The first and most important aspect of identifying who must file the annual FBAR is to determine who is defined as a US person. Unfortunately, the term US person is not limited to just individuals – which can cause some unnecessary confusion in just trying to figure out who has to file the FBAR. It includes several other types of entities and more.
As provided by the IRS:
Who is a U.S. Person?
A “U.S. person” means:
A citizen or resident of the United States;
An entity created, organized, or formed in the United States or under the laws of the United States, any State, the District of Columbia, the Territories and Insular Possessions of the United States, or the Indian Tribes. An “entity” includes but is not limited to, a corporation, partnership, trust, and limited liability company; or
An estate formed under the laws of the United States.
Individuals are one category of US persons for tax purposes, but it is not limited to just US citizens. The three main categories of individual US persons include: (1) a US Citizen, (2) a Lawful Permanent Resident, and (3) a foreign national who meets the Substantial Presence Test such as a taxpayer who may be residing in the United States on a work or investment visa.
An entity can also be considered a US person if it was formed in the United States or under US law. For example, a US corporation, Trust, Partnership, or Limited Liability Company would all qualify as an entity that is a US person having to file the annual FBAR.
Another “US person” for FBAR filing purposes is a decedent’s estate. An estate is a person’s assets at death. If an estate maintains foreign accounts, it is required to file an FBAR.
A disregarded entity also qualifies as a US person that may have to file an FBAR. For example, if a person forms a corporation in the United States and then becomes a disregarded entity, the members of the disregarded entity may be required to file the FBAR to report ownership or signature authority over foreign accounts.
What About US Territories and Possessions?
When a person is determining whether or not they are considered a resident of the United States, it is important to note the territories and possessions are typically included under the definition of US persons who have an FBAR filing requirement. Therefore, in a common situation in which a US person resides in Puerto Rico but has accounts outside of the United States (and its territories and possessions), they qualify as a US person who could be required to file the annual FBAR.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.