June 13

FBAR Filing

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FBAR is a commonly used acronym to refer to FinCEN Form 114 which is titled “Report of Foreign Bank and Financial Accounts”. FBAR is a means for US persons to report their foreign bank accounts to the US government. It is a way for the US Department of Treasury to keep a tab on the finances of US persons and the flow of those finances.

Though one might think that FBAR is a tax evasion tool managed by the IRS, then that is only part of the scope of FBAR. FBAR is a report that is actually filed with the Financial Crime Enforcement Network (FinCEN) which is a separate division under the US Department of Treasury.

While FBAR was initiated to keep a check on money laundering and illicit deposits of money at offshore locations, the instrument today is used to tackle drug trafficking and terror financing. Due to the sensitive nature of issues that FBAR targets, the penalties for non-compliance or minor mistakes are quite steep.

A point to note, FBAR is independent of IRS Form 8938, which is titled “Statement of Specified Foreign Assets”. These two forms need to be filed separately if you are required to do so. The requirements for both these forms are completely different.

 

Who has to file FBAR forms?

Countries With No Income Tax A US person who has a financial interest in a foreign account/accounts or a US person who is a signatory to such accounts, where the combined value of the foreign accounts exceeds $10,000 in one calendar year, needs to file FBAR. US persons are classified as US citizens, green card holders, resident aliens or non-US persons who pass the Substantial Presence Test. Besides individuals, corporate/legal entities like partnerships, corporations, estates, and trusts with any connection to a foreign account (as outlined above) are also required to file FBAR.

As you can tell, pretty much all US persons and businesses/entities with any sort of significant interest in foreign accounts are covered under FBAR. Also, note that the $10,000 limit is an aggregate limit and it is applicable to the total value of all foreign accounts put together. If you have one foreign account with $9,000 and another at $1,000, then you have to report both the accounts even though the account with $1,000 seems insignificant.

There are some notable exceptions where the FBAR provision does not apply:

  • Foreign accounts maintained in a US military banking facility
  • Beneficiaries of trust in the case of the person reporting the foreign account via FBAR on behalf of the trust
  • Beneficiaries and owners of US IRA accounts
  • Qualified individuals like bank officers or company employees who have signature authority over a foreign account but no financial interest in such an account
  • Beneficiaries and participants in tax-qualified retirement plans

In terms of the types of accounts that need to be reported via FBAR, we are talking about any kind of financial assets. It could be simple bank accounts, mutual fund accounts, stocks and securities, and any other financial or investment accounts where you have a financial interest or are a signature authority for any such account. If you have precious metals like gold and silver stored in an overseas vault, then those holdings will also need to be reported via FBAR.

If you are ever in doubt as to what should be reported and what shouldn’t, remember that it won’t hurt to report something that did not need to be reported. There is no penalty on over-reporting. However, if you do not report something, then the penalties are steep.

What forms to file?

FBAR is not filed with the IRS. It is filed with FinCEN’s Bank Secrecy Act digital filing system which is online. However, if you are filing FBAR, then you may also have to file Form 8938 with the IRS. Form 8938 is the “Statement of Specified Foreign Assets”.

The threshold for filing Form 8938 is very different from the thresholds for filing FBAR. US persons with foreign assets of aggregate values of $50,000 at the end of the year or $75,000 at any point in a year need to file Form 8938. For joint returns, these thresholds go to $100,000 and $150,000 respectively. For expats, the thresholds are even higher. Individual expats need to report assets when they exceed $200,000 at the end of the year or when they exceed $300,000 at any point in a year. For joint returns, the limits are $400,000 and $600,000 respectively.

One thing is clear, if you own substantial foreign assets, then they need to be disclosed via FBAR and Form 8938. Non-business entities and non-US trusts might need to file additional forms besides FBAR and Form 8938.

 

When to file FBAR?

FBAR is to be submitted along with your annual tax returns in April. The due date is April 15 every year. However, there are quite a few expats who file the FBAR forms after April. Usually, there is no penalty for them filing the form later in the year. In fact, if you claim Foreign Earned Income Exclusion, then the deadline automatically gets pushed back to June 15th. Most FBAR filers are also known to receive an extension until October 15th to file FBAR. However, quite a few people file FBAR along with their tax returns in April itself.

How to file FBAR?

There are six parts in total on the FBAR form 114. The first part is the type of filer (individual/partnership/consolidate fiduciary/other), personal information like name, address, date-of-birth, and other entries like taxpayer ID or foreign identification number.

The second part is about the value of your accounts. You have to enter the maximum value of all your accounts put together and converted into US dollars at the prevailing exchange rate. The final entry in the FBAR form will be in USD. Along with disclosing the value of all accounts, you also have to disclose the type of account (e.g. bank account, securities account, etc.). Other information like the account number, the name, and the address of the bank/financial institution is also to be entered.

The third part is about joint accounts i.e. accounts which are jointly held either by you and your spouse or by you and someone else. The details asked will be similar to parts one and two. But, this section is only applicable if you jointly hold an account with someone else.

The fourth part is the section about disclosing whether you have no financial interest in a foreign account but are simply a signature authority or a trust beneficiary. This is the place where you declare your non-financial interest.

The fifth section is for a business entity that needs to file FBAR. If a US person has an interest in the business entity of more than 50%, then a consolidated FBAR for the person as well as the business entity may be filed.

The last section is the signature section. Here, you have to check the box labeled 44a, fill your title, and then return to the home tab to digitally sign the FBAR form. You can also save and print the form at this last section.

After all the sections of the form have been completed, the system checks the form for any errors. If no errors are found, then you will see a “Ready to File” button activate itself. This means that you are now ready to submit your FBAR filing.

 

Conclusion

Please note that this guide is meant to provide you with broad information about FBAR and its filing procedure. Nothing in this article should be treated as professional legal or tax advice.

FBAR filings have to be done correctly or else there are steep penalties for non-compliance. If you are serious about renouncing your US citizenship and will file your final FBAR, then it is best to speak to a tax professional or an attorney to get the right advice which will not land you in any trouble in the future.


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