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Foreign Bank Account Holders Must File an FBAR by June 30 When Accounts Exceed $10,000 Per Year

For foreign bank account holders, if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year, account holders must file a timely FBAR report or face severe civil and criminal penalties.

Information below provided by IRS FBAR Reference Guide.


The Bank Secrecy Act (BSA) gives the Department of Treasury authority to collect information from United States persons who have financial interests in, or signature authority over, financial accounts maintained with financial institutions located outside of the United States. This provision of the BSA requires that a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) be filed if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. FinCEN Form 114 supersedes Treasury Form TD F 90-22.1 and is available online only through the BSA E-Filing System.

Civil penalties for failure to file an FBAR range from $500 for a negligent violation to $10,000 for each non-willful negligent violation.  Willful failures to retain records of account or willful failure to file an FBAR can result in civil penalties of the greater of $100,000, or 50 percent of the amount in the account at the time of the violation.  Furthermore, willful failure to File an FBAR or retain records of account while violating certain other laws can lead to criminal penalties of up to $500,000 or ten years in prison, or bothConsidering the potential of hefty fines and potential prison time, it is imperative that foreign bank account holders determine whether they must file an FBAR by June 30 of each year.

Purpose of the FBAR

Overseas financial accounts are maintained by U.S. persons for a variety of legitimate reasons, including convenience and access. The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is also a tool used by the United States government to identify persons who may be using foreign financial accounts to circumvent United States law. Information contained in FBARs can be used to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

Who Must File the FBAR?

A “United States person” must file an FBAR if that person has a financial interest in or signature authority over any financial account(s) outside of the United States and the aggregate maximum value of the account(s) exceeds $10,000 at any time during the calendar year.


A “United States person” means:

  1. A citizen or resident of the United States;

  2. An entity created or organized in the United States or under the laws of the United States. The term “entity” includes but is not limited to, a corporation, partnership, and limited liability company;

  3. A trust formed under the laws of the United States; or

  4. An estate formed under the laws of the United States.

Disregarded Entities: Entities that are United States persons and are disregarded for tax purposes may be required to file an FBAR. The federal tax treatment of an entity does not affect the entity’s requirement to file an FBAR. FBARs are required under a Bank Secrecy Act provision of Title 31 and not under any provisions of the Internal Revenue Code.

United States Resident: A United States resident is an alien residing in the United States. To determine if the filer is a resident of the United States, apply the residency tests in 26 U.S.C. § 7701(b). When applying the § 7701(b) residency tests use the following definition of United States: United States includes the States, the District of Columbia, all United States territories and possessions (e.g., American Samoa, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, Guam, and the United States Virgin Islands), and the Indian lands as defined in the Indian Gaming Regulatory Act.

Example: Matt is a citizen of Argentina. He has been physically present in the United States every day of the last three years. Because Matt is considered a resident by application of the rules under 26 U.S.C. § 7701(b), he is required to file an FBAR.

Example: Kyle is a permanent legal resident of the United States. Kyle is a citizen of the United Kingdom. Under a tax treaty, Kyle is a tax resident of the United Kingdom and elects to be taxed as a resident of the United Kingdom. Kyle is required to file an FBAR. Tax treaties with the United States do not affect FBAR filing obligations.

Financial Account

Financial account includes the following types of accounts:

  1. Bank accounts such as savings accounts, checking accounts, and time deposits,

  2. Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts,

  3. Commodity futures or options accounts,

  4. Insurance policies with a cash value (such as a whole life insurance policy),

  5. Mutual funds or similar pooled funds (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions),

  6. Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.

Example: A Canadian Registered Retirement Savings Plan (RRSP), Canadian Tax-Free Savings Account (TFSA), Mexican individual retirement accounts (Fondos para el Retiro) and Mexican Administradoras de Fondos para el Retiro (AFORE) are foreign financial accounts reportable on the FBAR.

Example: Foreign hedge funds and private equity funds are not reportable on the FBAR. The FBAR regulations issued by FinCEN on February 24, 2011 do no require the reporting of these funds at this time.


A financial account is foreign when it is located outside of the United States, which includes the following places:

  1. United States, including the District of Columbia;

  2. United States territories and possessions, such as:

  3. Commonwealth Northern Mariana Islands

  4. District of Columbia

  5. American Samoa

  6. Guam

  7. Commonwealth of Puerto Rico

  8. United States Virgin Islands

  9. Trust Territories of the Pacific Islands

  10. Indian lands as defined in the Indian Gaming Regulatory Act.

Typically, a financial account that is maintained with a financial institution located outside of the United States is a foreign financial account.

  1. Example: An account maintained with a branch of a United States bank that is physically located in Germany is a foreign financial account.

  2. Example: An account maintained with a branch of a French bank that is physically located in Texas is not a foreign financial account.

  3. Example: Ed, a United States citizen, purchased securities of a French company through a securities broker located in New York. Ed is not required to report these securities because he purchased the securities through a financial institution located in the United States.


Generally, records of accounts required to be reported on the FBAR should be kept for five years from the due date of the report, which is June 30 of the year following the calendar year being reported. The records should contain the following:

  1. Name maintained on each account.

  2. Number or other designation of the account.

  3. Name and address of the foreign bank or other person with whom the account is maintained.

  4. Type of account.

  5. Maximum value of each account during the reporting period. Retaining a copy of the filed FBAR can help to satisfy the record keeping requirements. An officer or employee, however, who files an FBAR to report signature authority over an employer’s foreign financial account is not required to personally retain records regarding these foreign financial accounts.

Penalties

Failure to file an FBAR when required to do so may result in civil penalties, criminal penalties, or both. When a United States person learns that an FBAR should have been filed for a previous year, the filer should electronically file the delinquent FBAR report using the BSA E-Filing System website. The system allows the filer to enter the calendar year reported, including past years, on the online FinCEN Form 114. It also offers an option to “explain a late filing” or to select “Other” to enter up to 750-characters within a text box where the filer can provide a further explanation of the late filing or indicate whether the filing is made in conjunction with an IRS compliance program.

If the foreign financial account is properly reported on a late-filed FBAR, and IRS determines that the FBAR violation was due to reasonable cause, no penalty will be imposed. For additional guidance when circumstances, such as natural disasters, prevent the timely filing of an FBAR, see FinCEN guidance, FIN-2013-G002 (June 24, 2013).

For more information, visit the IRS website’s Report of Foreign Bank and Financial Accounts (FBAR) page.

Conclusion

To determine whether you should file an FBAR, consult with a Certified Public Accountant as soon as possible so that you can be ready for the June 30 reporting deadline.

Disclaimer: This article is for informational purposes only, and does not constitute tax or legal advice.

About The Grady Firm, P.C.

The Grady Firm, P.C. is a one-stop business law firm that specializes in working with Startups and small businesses, and can assist with immigration law, entity formation, contracts, equity share advising, and dispute resolution.  We help foreign entrepreneurs live and work legally in the United States, and are fluent in multiple languages to assist our international clientele. To schedule a complimentary 15-minute consultation with The Grady Firm’s  attorneys, call (323) 450-9010, or fill out a Contact Request Form.


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