FBAR Filing – Reporting Foreign Bank Accounts | IRS FBAR Filing
FBAR Filing – Reporting Foreign Bank Accounts | IRS FBAR Filing
FBAR Filing: Taxpayers with foreign bank and financial accounts may have a FinCEN 114 FBAR filing requirement to disclose their account information on an annual “Report of Foreign Bank and Financial Account form” with the Department of Treasury (FinCEN) — in order to avoid IRS Penalties.
Do I Have To Report Foreign Bank Accounts to the IRS?
Yes, if you meet the threshold filing requirements for reporting foreign bank (and financial accounts), you have to report them to the IRS, and usually you will have to file an “FBAR.”
What is an FBAR Filing?
An FBAR filing is the annual reporting of foreign accounts on an “FBAR” (Report of Foreign Bank and Financial Account Form aka FinCEN 114)
Do I Have to File FBAR Every Year?
Yes, you have to file FBAR in any year you meet the threshold filing requirements for filing the form.
When Should I File the FBAR?
The FBAR is due in April, the same time your taxes are due. Currently, the FBAR is on automatic extension until October.
Can I File FBAR for Previous Years?
Yes, and you are actually required to do so, but you have to use one of the approved Offshore FBAR Amnesty Programs to submit (including possible delinquency procedures or reasonable cause).
What Is The Penalty For Not Reporting A Foreign Bank Account?
The Penalty for not Reporting the FBAR is tough. It ranges from non-willful to willful penalties, and civil as well we criminal penalties.
More Detailed FBAR Filing Summary
The following is a more detailed summary about Filing the FBAR:
What is the FBAR Form?
Filing of the FBAR is required for Taxpayers with Foreign Bank Accounts and Financial Accounts. U.S. Persons File an Annual FBAR Reporting Statement (FinCEN 114), to comply with IRS and FinCEN reporting requirements.
And with the introduction and enforcement of FATCA, there has been a renewed interest in Foreign Account Reporting, Filing and Disclosure.
For many U.S. Persons, it is not until several years after their first Report of Foreign Bank and Financial Account form was due, that they realized they had a requirement to file an annual Foreign Bank Account Reporting form.
Who Needs to File the Annual FBAR (FinCEN 114)
The form must be filed by U.S. persons. In order to confuse you, the IRS does not define US person to mean the same as U.S. Citizen. A U.S. person (individual) typically falls into three categories: U.S. Citizen, Legal Permanent Resident, Foreign National who meets the IRS Substantial Presence Test (typically individuals on H-1B Visa, L-1 Visas, and E-2 Visas – although it is not a requirement to have one of these Visas).
If you are a US person, then you move onto step two.
The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does that total amount exceed 10,000? If it does, then you have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.
What Types of Accounts are Included on the FBAR?
This is one of the more difficult parts of the job. That is because when a person thinks of financial accounts, they typically think of a “Bank Account.” It makes sense, since the word “Bank” is included directly in the FBAR definition. Therefore, many people (understandably so) will only focus just on bank accounts. Unfortunately, you have to include all financial accounts unless it is otherwise excluded (and there are only a few exclusions).
Some examples of other accounts include:
- Stock accounts that have an Account Number
- Private Pension Accounts
- Investment Accounts
- Foreign Mutual Funds and ETF Accounts
- Foreign Life Insurance that has a Surrender Value
How Many Accounts Do You Have?
This is an important question, because if you have more than 25 accounts then you do not have to list all of the accounts on the actual form. Rather, you maintain your own records so that the IRS contacts you on a future date, you will have that information available.
Like most people, if you have less than 25 accounts then you would report all the accounts on FinCEN 114. It does not matter if your account has a zero balance, and it does not matter if the account was “dormant.” If the account is open and you are listed on the account, you have to report it.
There are different sections of the form. The sections are broken down into three main categories, which include ownership of the Account, co-ownership or joint ownership of the account, and signature authority and/or no monetary interest in the account.
The latter category typically includes people who may have been included on the account in emergency when a parent or elderly individual is getting on age. Also, if you are an employee and you have signature authority, that is included as well.
It is important that you prepare separate categories to identify each different type of account. That is to make sure that, for example, you do not report an account you have signature authority in this section that is labeled account ownership, because then the IRS and U.S. government will believe that the money listed is your own money — as opposed to money for which you may have no ownership over.
Determine the Maximum Balance
You are not required to search for the holy Grail of maximum balances. In other words, you should do the best you can. If you have bank statements for each month, then you would use each month statement to determine what the maximum value is. Likewise, if you have a passport account passbook account and you only get it updated when you enter the bank, then you will have to use the best value you can.
Thereafter, make sure you have identified the maximum balance available for each account.
IRS Penalties for Late Filing the FBAR
At our International Tax Law Firm (Golding & Golding), offshore disclosure is all we do, and this includes Late Filings, and FATCA Compliance.
Filing a late Foreign Account form outside of the offshore disclosure programs is typically considered a Quiet Disclosure and can land you in some real trouble. If you happen to have zero unreported income (that means zero unreported income from abroad and not zero tax liability) you may be able to qualify for the delinquency procedures, which results in a penalty waiver and a relatively simple submission procedure.
If you have any unreported income, you can still make a reasonable cause submission but it is different. Most individuals prefer to enter one of the approved programs such as streamlined filing compliance procedures or traditional OVDP — you may have multiple options available to you.
Depending on which program you qualify for, and/or which program you prefer to enter, you may qualify for reduced penalty for even a penalty waiver.
We do not recommend making any submission to the Internal Revenue Service regarding any foreign or offshore accounts without at least speaking with an experienced offshore disclosure lawyer first to evaluate and assess your facts.
How Can You Avoid FBAR Penalties?
It is important to keep in mind that oftentimes, an individual can submit to one of the amnesty/offshore voluntary disclosure programs, and safely bring themselves into compliance without much issue.
Don’t Try to Sneak Around IRS Disclosure Laws
Instead of taking steps to legally get into compliance, some individuals will try to secretly submit their information to the IRS while making the least amount of noise – hence the name “quiet disclosure”
What is a Quiet Disclosure
A quiet disclosure occurs when a person knowingly retroactively files past FBAR without properly alerting the government authorities. In this particular area of law, the proper authorities are FinCEN and the IRS.
While we understand there is an inherent fear factor in submitting past FBARs through approved procedures and dealing with potential IRS fines and penalties, if you just start filing timely FBARs going forward — that is also considered a quiet disclosure.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)
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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, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
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