Did you just learn about FBAR filing requirements? Are you worried that you should have filed one and scared about what will happen if you don’t?
It happens all the time: Someone moves to the United States from abroad, files their taxes on time, and perhaps even uses a tax professional to file… but years go by before they ever hear about FBARs or learn that they need to file one in addition to their tax returns!
We’ve had countless clients in this situation and the good news is, there’s a great solution if you didn’t know about your FBAR filing requirements. Let’s go over some of the most commonly asked questions about the FBAR.
What is the FBAR?
FBAR stands for Foreign Bank Account Reporting. The FBAR is a form (FinCEN Form 114) that certain people need to file each year in addition to their tax returns.
The FBAR simply tells the IRS the value of certain foreign assets; filing it doesn’t necessarily mean you’ll owe tax. Even if you do, it’s normally just a percentage of any interest gained on certain types of foreign accounts.
Who needs to file the FBAR?
If you had certain foreign assets with a combined value of $10,000 or more at any time during the tax year, you need to file the FBAR along with your tax return. Even if the value was $10,001 for 1 single day out of the year, you need to file.
The types of foreign accounts you need to calculate include, but are not limited to:
- Bank accounts (checking or savings)
- Brokerage accounts
- Retirement accounts
- Life insurance policies that earn interest
FBAR filing requirements for married couples
If you and your spouse only have foreign accounts that are jointly owned, you can file the FBAR form jointly.
Example: You and your husband have a jointly held savings account at a bank in Germany. Neither of you own any other foreign accounts. You can submit a joint FBAR form for the tax year.
If either of you have foreign accounts that are individually owned, you will each need to file a separate FBAR.
Example: You and your husband have joint checking and savings accounts in Canada. You also have an individual retirement account managed in Canada. You and your husband will both need to file an FBAR. Both you and your husband will report information on the checking and savings accounts; only you will report information on the retirement account.
FBAR filing requirements for minors
The guardians of minors or those who can’t file themselves will need to file an FBAR on behalf of their charges.
Example: When your child is born, you open a savings account in their name back home in France. By the time the child is 3, the savings account holds $10,000. You will need to file an FBAR on behalf of your child, using your child’s name, Social Security Number, and other information.
FBAR filing requirements for businesses
U.S. companies (any corporation, partnership, trust, or LLC formed under the laws of the United States) are also subject to FBAR reporting if they own foreign accounts.
Example: You own a travel agency selling tours to New Zealand. The company has a checking and savings account in a New Zealand bank to pay vendors, and the value of the accounts is over $10,000. Your company will need to file an FBAR along with your business tax returns.
FBAR filing instructions
To file the FBAR (or have a tax professional file the FBAR for you), you’ll need the following information:
- Your name, Social Security Number or ITIN, and address
- The name, Social Security Number or ITIN, and address of all joint account owners
- The names and addresses of all foreign financial institutions where you hold accounts
- Types of accounts you own (checking, savings, securities, etc)
- The maximum value of each account during the tax year (Jan. 1 – Dec. 31) in U.S. dollars*
*Use the U.S. Treasury’s foreign exchange rate as of Dec. 31 of the year you’re reporting. You don’t actually need to convert your funds to U.S. dollars; you’re only calculating for reporting purposes. A tax professional can calculate this for you, as well.
The deadline for FBAR filing is April 15 (June 15 if you’re a U.S. person living abroad). However, if you don’t file in time, you get an automatic extension to October 15.
If I don’t file an FBAR, how will the IRS ever know?
The days of hiding funds in Swiss bank accounts are over. Most foreign banks now cooperate with the IRS and send them the financial records of any U.S. persons.
Your financial institution may even ask point-blank whether you are a U.S. person. If you say yes, they might request you to complete a Form W-9, or else risk account termination. If your foreign bank has you fill out a W-9, expect the IRS to receive information about your accounts.
What happens if you don’t file FBAR forms?
The penalties for not filing an FBAR form begins at $10,000 per year. If the IRS notifies you of these penalties and you don’t take action in a timely manner, that amount can quickly rack up.
Failure to file other forms disclosing certain types of foreign assets can be up to $50,000 per form, per year.
If you don’t report an account or accurate values for an account, and the IRS deems your behavior “willful” (purposeful), you can be fined $100,000 or 50% of your highest account balance–whichever is higher.
However, if you failed to file non-willfully (accidentally)–for example, because you didn’t know about the FBAR filing requirements–you may qualify for Streamlined Offshore Procedures. If you qualify and complete the program, you only have to pay a small penalty, along with your taxes due plus interest. Sign up for our free download here to see if you qualify for streamlined disclosure.
Need help filing your FBARs? Contact our experienced FBAR attorneys at 847-281-3436.