The Ultimate Guide to FBAR Filing Requirements
Technology has made foreign trade much more accessible, closing the gap between nations through a flourishing global economy. Mobile banking has opened doors never before thought possible, empowering the foreign currency exchange market and introducing a new kind of foreign tax credit.
All of this also means a rise in foreign financial accounts. Foreign income must be reported through the Report of Foreign Bank and Financial Accounts (FBAR) due to the United States Treasury every year.
What you may not know is that the rules are different for your foreign accounts than they are for your domestic accounts, and noncompliance could cost you dearly.
This is what you need to know for 2020’s FBAR filing requirements.
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FBAR Reporting Requirements
The FBAR is a way for the U.S. government to monitor and prevent illicit activity that takes place during the exchange of foreign currency.
You don’t have to report all foreign and offshore accounts to the IRS. Certain exemptions may apply, sparing you the trouble and expense of having to file each year. However, the 1970 Bank Secrecy Act requires all Americans with a foreign financial account to file annually with the United States Treasury Department, regardless of whether there is any taxable income.
The Internal Revenue Service (IRS) has clearly defined rules regarding the filing of financial accounts that are held in a foreign country, including bank accounts, brokerage accounts, and mutual funds.
You will need to file an FBAR if you meet the following requirements:
- You hold a financial interest in the account;
- You are a signature authority or hold other authority over the account;
- The aggregate value of your foreign accounts exceeds $10,000 at any time throughout the year.
Foreign banks may have requirements that differ greatly from American institutions, so this is a way for the U.S. government to monitor international dealings.
Who Needs to File FBAR
Your federal filing status, such as single or married, has no bearing on your FBAR filing. That doesn’t mean that foreign filings do not have their own exemptions, however.
These parties do not have to file an FBAR:
- Government entities or foreign financial institutions that own financial accounts;
- U.S. military banks;
- The owner or beneficiary of an IRA;
- Correspondent/Nostro account, which your bank may create to make financial transactions with another institution;
- The beneficiary of a trust if a U.S. party affiliated with the trust files an FBAR.
A U.S. person who has already made their foreign accounts known to the IRS does not have to file an FBAR — unless they have new income to report. According to the IRS, a U.S. person is considered a U.S. citizen, resident, or any domestic legal entity, including a partnership, corporation, limited liability company (LLC), estate, or trust.
The following areas are also exempt from filing an FBAR:
- Native American lands, as defined by the Indian Gaming Regulatory Act;
- Northern Mariana Islands;
- District of Columbia;
- American Samoa;
- Puerto Rico;
- United States Virgin Islands;
- Trust Territories of the Pacific Islands.
Penalties for Not Filing FBAR
The penalties for non-filing are steep. Failure to file your annual FBAR could cost you up to $10,000 in civil costs for each penalty.
Worse, if you are found to have knowingly and willfully refused to file your foreign holdings, you could be subject to $100,000 in penalties, or up to 50% of the total amount per violation.
You can be charged for multiple violations and sentenced to jail time if found guilty.
How to File FBAR
According to the IRS, you must “reasonably figure and report the greatest value of currency or non-monetary assets” in your accounts for each calendar year. All reported values must be submitted in U.S. currency, using the previous year’s Treasury Bureau of the Fiscal Service exchange rate. If no rate is available, you can use an alternate valid exchange rate and source.
The FBAR requires its own tax filing of FinCEN Form 114, so it cannot be combined with your regular federal tax return.
Filing the FBAR has been made easier with the introduction of the official BSA E-Filing System provided by the Financial Crimes Enforcement Network (FinCEN). You may still have the option to file a traditional paper form, but you will have to be granted special permission by calling the FinCEN Regulatory Network.
The Record of Authorization to Electronically File FBARs, FinCEN Report 114a, is required if another U.S. party files on your behalf. This form is not submitted, however; you merely keep it on record for your holdings.
There are specific requirements for jointly owned accounts and spouses. For joint ownership, the IRS stipulates that each person must report the entire value of their share via an FBAR.
Spouses do not need to file separate FBARs if Form 114a (Record of Authorization to Electronically File FBARs) is on file. You must report all foreign financial income on your spouse’s FBAR.
If you do not meet these requirements, you will be responsible for filing your own FBAR.
When Is the FBAR Form Due?
The FBAR is due on April 15, but the date could be affected depending on which day of the week it falls.
If April 15 happens to be on a Saturday, Sunday, or federal holiday, your FBAR is due on the business day immediately following.
Amending an FBAR
Taxes are complicated enough without adding foreign exemptions, so mistakes are bound to happen. Thankfully, the IRS has a plan ready if you make mistakes on your annual reporting.
To correct errors on a submitted FBAR filing, you must refile with a new FBAR that is completed in its entirety, including all new and corrected information. You can file your new FinCEN Form 114 the same way as before, either through the e-filing system or through a paper form, if granted.
When you refile online, be sure to check the “Amended” box on Form 114. This will release the Prior Report BSA Identifier field, where you need to enter the BSA ID number from your original FBAR filing. This will link your two forms together, but if you do not have the original number, simply fill the fields with zeros.
Extending an FBAR Due Date
There is an automatic six-month extension in place should you fail to file by April 15 of each year; however, you must file by October 15 to avoid penalty. Victims of a qualified natural disaster may also earn an extension, depending on their circumstances.
The IRS provides FBAR Relief Notices with the most up-to-date information. It notes that you can still file FBARs late if you are free from civil and criminal investigation and the IRS has not yet been in contact with you. All late filings are subject to special filing instructions that include a reason for the late submission.
Still, the best policy when it comes to filing is always the sooner, the better.
Taxes aren’t easy. That’s why the IRS has set up a number of resources to help keep your tax filings compliant. There is a helpful FBAR filing webinar that offers help visually, with step-by-step instructions.
We have compiled this handy table with all the contacts you need for your next FBAR filing.
|IRS FBAR Hotline Toll-Free
Monday through Friday, 8 a.m. to 4:30 p.m. EST
|IRS FBAR Hotline International
Monday through Friday, 8 a.m. to 4:30 p.m. EST
|FinCEN’s BSA E-Filing Help Desk
Monday through Friday, 8 a.m. to 6 p.m. EST
|FinCEN’s Regulatory Helpline Toll-Free||800-949-2732|
|FinCEN’s Regulatory Helpline International||703-905-3975|
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This post was updated February 5, 2020. It was originally published February 5, 2020.