What is the FBAR and do I need to file one?
The FinCen form 114, or more commonly referred to as the “FBAR”, reports various details of your foreign financial bank accounts, foreign to the United States that is. If you’re wondering why the IRS need to know about this, well it’s merely so Uncle Sam can ensure there are no foreign accounts that are being used for illicit operations.
There are only two requirements to check against to see whether you need to file the FBAR;
- Are you a US Citizen, Resident or Green Card holder?
- Do you have more than $10,000 in aggregate, in foreign bank accounts? To further clarify this point, you need to consider the combined balance of all your non-US bank accounts on any given day in the tax year.
If the answer to the first question is no, then why are you even reading about the FBAR?! But if the answer to both questions is yes, then you most likely need to file an FBAR.
Got it. How do I file it and are there any deadlines?
The FBAR must now be filed online using the BSA e-filing system which is found here.
It is of course filed each calendar year and the first deadline has now been brought forward to April 15th (previously June 30th). But you should note that if for any reason you fail to meet this deadline then there is an auto extension in place which will give you until October 15th.
Ok, understood, is there anything specific I need to include?
In short, the FBAR needs to include all your foreign financial accounts. The most common of which include:
● Bank accounts (these are your typical savings accounts, checking accounts, ISA accounts etc.)
● Securities accounts (such as brokerage accounts)
● Other account types (often private pension accounts)
● Mutual Funds
It is also worth bearing in mind the type of accounts that you need to report, including those individually owned, be sure to also include:
● Any joint account(s)
● Any account(s) that you have signature authority over but not necessarily any financial interest in such as a custodial account for your child
● Any account(s) where you are filing a consolidated report (this occurs when you own more than 50% interest in another entity that is required to file an FBAR)
What happens if I miss the deadline, are there any penalties?
Yes, and at first glance the penalty regime can seem particularly harsh:
● If you did not file your FBAR and the failure was non-wilful*, the maximum penalty is $10,000 per account.
● If you did not file your FBAR and the failure was wilful*, the penalty is the greater of $100,000 or 50% of the balance of each account per year.
● In more severe cases, wilful violations can lead to harsher criminal sanctions of up to a $500,000 fine and even imprisonment.
*The terms “non-wilful” and “willful” are often interpreted in various ways depending on the individual’s circumstances but, briefly speaking, for the average Joe they mean:
- Non-wilful; being genuinely unaware of the FBAR filing requirements, being fully tax compliant otherwise and perhaps having reasonable cause for not filing.
- Wilful; being well-aware of the filing requirements for the FBAR and purposefully not submitting the form
It goes without saying that all penalties are of course, at the discretion of the IRS and it might not always be possible to file your FBAR on time. If you have a reasonable explanation for not filing, then there should not be any penalties imposed. Delinquent filers may be able to get caught up without incurring penalties if they are eligible for the streamlined foreign offshore disclosure program. Please see our article on the streamlined procedure for more details.
Ok, I’ve set a reminder to contact PJD Tax before the deadline! Is there anything else?
Yes, there is, Form 8938.
Unlike the FBAR which is filed separately, Form 8938 it is to be filed as a part of your yearly federal tax return. It is important to note that the filing thresholds are significantly higher so this form is not relevant to everyone. Although it is like the FBAR in that some of the information is repeated, there are some additional reporting requirements thus making it a bit trickier. Therefore, in almost all cases, if you have a US tax preparer they will complete this for you (albeit at an additional fee).
The thresholds are broken down into two separate categories based on your filing status (single, married filing jointly, married filing separately) and then whether you are living inside or outside the US.
An example of some of the assets which should be on Form 8938 include but are not limited to:
● All your Non-US bank and brokerage accounts
● Non-US stocks, securities or bonds
● Any interest in non-US deferred compensation
For a more thorough list you should refer to the IRS’s form 8938 instructions.
We hope that this article has provided you with some insight into the FBAR and Form 8938. As with all areas of tax it may come across easy but can often be complicated, and we encourage you to seek professional help where required. Feel free to contact us for any assistance.
Frequently Asked Questions
What if only one of my accounts has more than $10,000 and the rest are under?
If you meet the threshold for filing the FBAR then the report must contain all of your accounts regardless of whether they have a balance over $10,000 or not. This includes accounts which may be dormant or have zero balances.
I have a joint account with my spouse, do they also need to file one?
If you have a joint account with your partner and that is your partners only account, then you can list their account on your FBAR and they are not required to file separately. If, however, they have a separately owned account which is only in their name then they will need to file their own individual FBAR. Please note that each of the joint holders should consider the entire balance of the joint account when filing their own FBAR.
I made a mistake on my FBAR which I have now filed, can I amend it?
You can if you have the original submission receipt from when you filed your first FBAR. This receipt will contain the “BSA Identifier” which you need to input onto the new FBAR that you file.
My accounts are in several different currencies, is that ok for filing?
The values contained in the FBAR need to be in dollars. The IRS publish an end of year exchange rates list which you must use to convert your currency in to dollars and then this figure is the one that needs to be reported.