While many Americans race to submit their income tax returns on time each year, they forget about another important tax form: the FBAR (otherwise known as Foreign Bank Account Reporting or FinCEN Form 114). For those who qualify, failing to submit this form can lead to a mountain of IRS penalties.
We’ve helped countless clients resolve this issue, and we can do the same for you! We’ll help you understand who needs to file the FBAR, how to file it, and what could happen if you don’t.
What Is an FBAR?
FinCEN Form 114 is commonly referred to as the FBAR, short for Foreign Bank Account Reporting. It’s an information return that must be filed in addition to your tax return if you meet the filing requirements.
The FBAR reports the value of certain foreign assets you own, such as bank accounts or brokerage accounts hosted in countries outside the US.
Who Needs to File the FBAR?
There are several deciding factors to help you figure out if you are required to file form FinCEN 114.
An FBAR filing is required if all the following apply:
- The filer is a U.S. person
- The filer has certain types of accounts, such as bank accounts, maintained in a foreign country
- The filer has a financial interest or signature of authority over these accounts
- The value of these accounts exceeds $10,000 during the tax year
Lets break down each of these requirements.
FBAR Filing Requirement #1: U.S. Person
What is a “U.S. person,” anyway? This includes:
- A U.S. citizen
- A resident of the United States
- Anyone granted a green card to reside in the US permanently
- Anyone who lived in the US for at least 183 days out of the year
- Anyone who files a first-year election on their income tax return
- An entity formed under the United States or any of its territories
If any of these apply to you, the government considers you a U.S. person.
FBAR Filing Requirement #2: Foreign Accounts and Assets
The types of foreign accounts and assets reported on FinCEN Form 114 include, but are not limited to:
- Bank accounts (checking or savings)
- Brokerage accounts
- Retirement accounts
- Life insurance policies that earn interest
FBAR Filing Requirement #3: Financial Interest or Signature Authority
It’s important to understand your relationship with the relevant foreign accounts; the filer may have a financial interest or signature authority over the account.
Accounts held by an entity (such as an LLC, corporation, or trust) can create a financial interest for a U.S. person if the entity falls into any of the following:
- A corporation where a U.S. person owns more than 50% of the company’s stock
- A partnership where a U.S. person receives more than 50% in profits or capital gains
- A trust where the U.S. person is the owner
- A trust in which a U.S. person benefits from 50% of the assets or receives more than 50% of the current income
- An entity in which a U.S. person holds more than 50% of the voting power
The term signature authority is much easier to comprehend. It refers to anyone who can control the disposition of assets and funds through direct communication with the institution maintaining the account. This can be done individually or in conjunction with someone else.
FBAR Filing Requirement #4: Value of Accounts
The FBAR reporting threshold is $10,000. If any of your accounts meet the previously mentioned requirements, your calculation should include them.
If your qualifying foreign assets had a combined value of $10,000 or more during the tax year, you must file FinCEN 114. Even if the combined value was $10,001 for a single day out of the year, you’re still required to file.
Common FBAR Filing Scenarios
Filing Requirements: Married Filing Jointly
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 owns any other foreign accounts. You can submit a joint FBAR form for the tax year.
Filing Requirements: Married Filing Separately
The FBAR can be filed separately if:
- Only one spouse owns qualifying foreign financial accounts, brokerage accounts, or retirement accounts
- The other spouse has no authority over those accounts
If both spouses own qualifying accounts and the accounts are not jointly 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 need to file separate FBAR forms.
You and your husband will both report information on the checking and savings accounts; only you will report information on the retirement account.
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.
It’s important to remember that even if the child is not required to file a tax return or the parents are filing a tax return on the child’s behalf, children with foreign accounts are still required to file.
These are some of the most common accounts for minors that must be reported:
- Foreign life insurance
- Bank accounts abroad (i.e., savings accounts and trust funds)
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 and Social Security Number.
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.
When is the FBAR Filing Deadline?
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 you missed the October 15 deadline, you could submit the FBAR late and risk potential penalties. This is known as “quiet disclosure,” and it’s not always recommended.
How to File FinCEN Form 114
The FBAR filing process can be a lot to deal with if it’s your first time having to submit. We highly recommend consulting with one of our experienced FBAR lawyers for a timely and accurate filing.
Before you get started, it’s best to have all the necessary documentation prepared and up to date.
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 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.
FBAR Penalties: What Happens If You Don’t File the FBAR?
Although FinCEN regulates FBAR filing, the IRS has the authority to enforce FBAR penalties for filing late or not filing at all. The severity of penalties depends on whether your failure to file was willful or non-willful.
You can receive an FBAR penalty for any of the following reasons:
- Not filing an FBAR when it was required
- Filing an FBAR but omitting one or more required accounts
- Filing an FBAR with inaccurate account values
FBAR penalties can be civil or criminal. Penalties are harsher if the IRS deems your actions willful (intentional).
Civil FBAR Penalty
For non-willful violations, the civil FBAR penalty is usually $10,000 for each year you didn’t file, but it ultimately depends on the number of violations (accounts not reported or misreported) and the value of those accounts.
For willful violations, you can be fined $100,000 or 50% of your highest account value—whichever is higher. The IRS can assert these penalties for each year you didn’t file.
For example, if you willfully didn’t file FBARs for 5 years, you could be fined $500,000 or more!
Criminal FBAR Penalty (Willful Violations)
In some cases, the IRS can pursue criminal prosecution and civil penalties. Criminal penalties include:
- Willful failure to file: A fine up to $250,000, 5 years in prison, or both
- Willful failure to file in concurrence with another crime (such as tax evasion): A fine up to $500,000, 10 years in prison, or both
Willful failure to file an FBAR is a felony, so if you are convicted, you will lose the right to vote, lose professional licenses, and other associated penalties. If you are not a United States citizen and are convicted of a felony, you will be deported after serving jail time.
What If I Haven’t Filed FBARs for Multiple Years?
If you didn’t know about your FBAR filing requirements or can otherwise show you acted non-willfully, you may qualify for a streamlined offshore disclosure and be able to avoid harsh penalties.
If you filed the FBAR on time, but made a mistake or forgot to include important information, you can request an FBAR amendment. The IRS will decide if you acted willfully or non-willfully to determine which program you qualify for.
If you forgot about a foreign bank account that may have been dormant for years, the IRS generally considers this a non-willful act.
Taxpayers who acted non-willfully are eligible for the following submission procedures:
- Delinquent FBAR Submission
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
If you didn’t file and your actions were willful, you should call a tax attorney immediately to discuss your options.
You may be able to use the Voluntary Disclosure Program. While there are no guarantees, this program typically allows you to avoid criminal charges in exchange for paying IRS penalties.
Need Help Filing the FBAR?
The FBAR process can be confusing, and one mistake can result in significant penalties.
Do you need an FBAR lawyer? Give us a call today to schedule a confidential consultation!