What is FBAR (Reporting Foreign Bank & Financial Accounts)

What is FBAR (Reporting Foreign Bank & Financial Accounts)

FBAR (Reporting Foreign Bank & Financial Accounts)

What is FBAR (Reporting Foreign Bank & Financial Accounts): There are few international tax forrms as controversial and misunderstood as the FBAR. In fact, the FBAR is not technically even an IRS Tax Form. Rather, it is an international information reporting form under Title 31 (not Title 26 Tax Code) — which has nothing to do with taxes. Rather, the FBAR (Foreign Bank and Financial Account Reporting) form is used by US Persons in order to report their annual foreign account maximum value information to the IRS. Complicating the matter further, is the fact that the term “foreign account” means much more than just bank accounts. It also includes: Investment Accounts abroad; foreign Pension Accounts, overseas Life Insurance Policies and possibly cryptocurrency wallets and exchanges (see FinCEN Notice 2020-2). The reason FinCEN Form 114 filing is so important, is that in recent years, the IRS has made foreign accounts compliance a key enforcement priority.  The failure to timely report the FBAR may result in fines and penalties. This post will serve as a refresher as to why Foreign Bank Account Reporting should remain on your radar — with links to much more comprehensive articles on matters involving FBAR Reporting, Penalties and Waivers.

Important FBAR Facts to Know 

Questions about FinCEN Form 114 can go on indefinitely — there is just that much to know.

Here are 10 of the more common questions we receive:

What is FBAR (FinCEN Form 114)?

The FBAR is an electronic form used in accordance with Title 31 (AML: Anti-Money Laundering). The form was first introduced 50-years ago to help the U.S. Government track foreign accounts.

As provided by the IRS:

      • “FBAR refers to Form 114, Report of Foreign Bank and Financial Accounts, that must be filed with the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department.

      • The form must be filed electronically and is only available online through the BSA E-FilingSystem website...The FBAR filing requirement is not part of filing a tax return.

      • The FBAR Form 114 is filed separately and directly with FinCEN….FBAR filings have surged in recent years, according to data from FinCEN…”

Who Has to File FinCEN Form 114?

Any person who meets the threshold for filing an FBAR may have to file.

The threshold is “if the annual aggregate total of foreign accounts exceeds more than $10,000 on any day of the year.”

Also, it is more than just individuals who have to file FinCEN Form 114; it also includes:

      • Trusts

      • Estates

      • Corporations

      • Partnerships

      • Other entities.

A few key takeaways:

      • It is not $10,000 per account, but rather an annual aggregate total

      • It includes joint and signature authority accounts.

      • It is required even if the person does not have a tax return filing requirement.

      • It doesn’t matter if the account pre-dates becoming a U.S. person

Do Individuals File FBAR?

Yes, Individuals file an annual FinCEN Form 114.

Do Entities File?

Yep, entities file the FBAR too.

What About Minors, do they File?

Yes. There is no minor’s exception to filing the FinCEN Form 114.

How about Trust and Estates, Do they File Too?

Yes, there is no exception for Trusts and Estates either.

What is the FBAR Filing Due Date?

FinCEN Form 114 is due in April, but is on automatic extension through October. (this may change in the future).

What’s the FBAR Filing Threshold?

If a Person has an annual aggregate total across all accounts (not per account total) that exceeds more than $10,000 on any given day of the year, the FinCEN Form 114 reporting rules kick-in and the form must be filed.

The +$10,000 is not a per account requirement, but rather +$10,000 in total for all accounts combined.

Which Foreign Accounts are Reported?

All different types of accounts are reportable. FinCEN Form 114 requires you report the majority of foreign bank and financial accounts.  It is important to note it is not limited to just bank accounts.

It may also include:

      • Investment Accounts

      • Pension Accounts

      • Stock Accounts

      • Life Insurance

How do I File the FBAR?

Individuals can go to the FinCEN.org website, download the PDF, save it to their computer, and submit directly from the form itself.

Need Help with FBAR Instructions?

We don’t know why they make it so hard, but we have prepared our own set of Instructions as 10-step guide to try to help you understand the requirements for filing.

Are there Late Foreign Account Reporting Penalties?

Yes, but there are FBAR Amnesty programs to assist you. Beware of attorneys trying to scare you.  Always be careful of self-purported world renowned, self-proclaimed “FBAR Experts.”

What are the FinCEN Form 114 Penalties?

The FBAR Penalties range extensively.  Some people get away with a warning letter in lieu of penalties.  Others can get hit with willfulness penalties, BUT most people are non-willful, and those penalties are more limited.  It is extremely rare for FinCEN Form 114 violations to turn criminal.

Can I Avoid Fines and Penalties?

You may be able to avoid or limit penalties. FBAR Amnesty is an approved method for safely getting into compliance.  Many taxpayers can reduce or even avoid penalties altogether. Please beware of any tax professional that recommends a quiet disclosure — those are illegal and may result in an IRS Special Agent Investigation (read: not good)

Golding & Golding: About Our International Tax Law Firm

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

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