Common FBAR Mistakes & Errors to Avoid

Common FBAR Mistakes & Errors to Avoid

Common FBAR Mistakes & Errors to Avoid

Top Common FBAR Mistakes & Errors to Avoid: The FBAR is used to report Foreign Bank and Financial Accounts each year to FinCEN (Financial Crimes Enforcement Network). The threshold for having to report the annual FBAR is relatively low comparable to other types of reporting requirements such as FATCA Form 8938. But, the failure to timely report the FBAR can lead to significant fines and penalties. In general, mistakes on the FBAR are similar to (most) mistakes in life — they happen, and they can be resolved most of the time. Over the many years we have assisted clients with FBAR reporting and compliance, we have come across 25-to-50 avoidable common FBAR mistakes and errors — but for purposes of this article, let’s focus on five to ten of the most common FBAR mistakes.

Preface to Common FBAR Mistakes

While the FBAR form in and of itself is not as difficult as some people would like to make you believe it is, there are some very specific rules regarding filing of the FBAR form. If you make mistakes when filing the FBAR and are out of compliance for either not filing the form, or filing the form late (aka untimely FBAR) — the penalties can be tough — although you may qualify for offshore tax amnesty.

FBAR Mistakes and Errors

Here is a list of some recent common FBAR mistakes we see often:

Minor Children and FBAR Reporting

That’s right — the bank account that your mother-in-law opened for your newborn it is not exempt from FBAR reporting.  Just because your child is a “minor” does not mean the child is exempt from filing the annual FBAR. So little Timmy, who just took his first steps and is working on pushing out his first words could potentially get hit with an FBAR penalty for not filing the form.

Foreign Retirement Accounts

Foreign retirement accounts are required to be reported on the annual FBAR.  Therefore, even if you have not contributed to your UK retirement, Singaporean CPF, or Australian superannuation — it is still currently reportable on the annual FBAR. Unlike the United Kingdom and Australia in which the U.S. has a tax treaty treaty the U.S has not entered into a bilateral tax treaty with Singapore, which impacts the taxation of accrued but non-distributed growth within the CPF.

Foreign Life Insurance

This is a very common FBAR mistake. It is pretty hard to believe that anyone would consider a life insurance policy that contains either a surrender value or cash value as an account — but as far as the annual FBAR is concerned, it is still reportable. Therefore, if you have a foreign life insurance policy with a surrender value or cash value — it is important that you included it on your FBAR. You may also have an immediate tax liability on the growth within the policy, and if you are paying foreign life insurance premiums may have a form 720/Excise tax requirement.

Slicing FBAR Values in Half

Let’s say for example you have joint ownership of a foreign bank account, which is valued at $700,000.  Even though you only have a 50% interest in the account (and that only $350,000 dollars of the account money belongs to you) that is not what the FBAR is asking. Rather, the FBAR is asking you for the total value of the account — not just your highest value apportioned to your percentage of ownership. Therefore, even if you were only a partial owner of a foreign account, when the FBAR asks for the highest maximum value, you are required to include the total value of the account.

Reporting Dormant or Closed Accounts

FBARs are similar to tax returns, in that when you file the FBAR in the current year, you are reporting the maximum balance for the prior-year.  Therefore, even if you close the account in 2021, you still have to file an FBAR in 2022 to report the maximum balance in 2021 — because the account was still open in 2021. If you have no other accounts for example, then 2022 (to report the 2021 maximum balance) would be a last year you would file, unless you open another account.

Late or Unfiled FBAR Fines and Penalties

If you have not filed your FBARs in the prior years that you were required to file – and/or you filed them late – you may be subject to fines and penalties. Things may get infinitely worse if you file (or filed) a quiet disclosure.

You may use IRS offshore tax amnesty/voluntary disclosure to try to reduce, minimize, or eliminate these penalties.

About Our International Tax Attorney Law Firm

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

Contact our firm for assistance.