FBAR – Everything Expats Need to Know
FBAR is an acronym for Foreign Bank Account Report. Every American who has a minimum of $10,000 in total in overseas bank or other financial accounts at any time during a tax year has to file an FBAR every year, whether they live in the States, or abroad.
A little history
The Bank Secrecy Act was passed in 1970 to help detect and prevent money-laundering. The Act has been amended several times since, however banks and individuals with foreign bank accounts that meet the requirements set out in the law are still required to file an FBAR each year.
Since the 2008 financial crisis, and the resulting national deficit and debt, the government has been particularly keen to track down tax-dodgers with money hidden abroad. As such, FBAR enforcement has been stepped up over the last few years, with harsh penalties now being enforced for non-compliance with the filing requirements.
Who exactly has to file an FBAR?
Any US taxpayer (i.e. any US citizen or green card holder) with a minimum of $10,000 at any time during the tax year either in one or split between multiple foreign financial accounts has to file an FBAR.
In practice, an FBAR is FinCEN form 114, which should be filed online.
Foreign financial accounts include:
– Bank accounts held at a foreign bank (both checking and savings)
– Bank accounts held at a foreign branch of a US bank
– Overseas mutual funds and pension funds
– Stocks or securities held in a financial account at a foreign financial institution
– Foreign-issued life insurance or annuity contracts with cash value
Joint account holders who aren’t married have to file separate FBARs, with each account holder reporting the entire balance of their jointly held account. Married joint account holders however that don’t also have separately held accounts of their own may file a joint FBAR.
US companies with a foreign financial account balances meeting the requirements must also file an FBAR.
“A record high 1,163,229 Report of Foreign Bank and Financial Accounts (more commonly, FBARs) were filed in 2015, up more than 8% from the prior year.”
– Kelly Phillips Erb, Forbes
What is the FBAR filing deadline?
In the past, FBARs were due by 30th June in the year following the end of the relevant tax year, however for the tax year 2016 onwards they’ll be due at the same date as federal income tax returns, so 15th April for Americans living in the States, and 15th June (or 15th October if you request an extension) for Americans living abroad.
What if I didn’t know about FBARs but I should have been filing?
If you were liable to file FBARs but you didn’t know you had to, you should consider the IRS voluntary disclosure program called the ‘Streamlined Procedure’. The Streamlined Procedure offers a penalty-free path to compliance. To qualify for the Streamlined Procedure, you must file your last three years’ federal tax returns along with your last six years’ FBARs, pay any back taxes that you may owe, and self-certify that your previous failure to file was non-willful, meaning you weren’t aware that you had to file.
Penalties for not filing FBARs (or incorrect filing) are harsh, and furthermore the IRS is collecting the bank details (including account balances) of Americans living abroad from foreign banks. As such, they are in a position to correlate this data with the information submitted on FBARs.
If you have any doubts or questions about your personal situation, don’t hesitate to contact an expat tax specialist for some advice.