FBAR – What Is It?
FBAR is an acronym for Foreign Bank Account Report. Every American who has a minimum of $10,000 in total in their overseas bank and other financial accounts at any time during a tax year has to file an FBAR, 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, and it introduced the FBAR filing requirement. The Act has been amended several times since, however Americans with foreign financial 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. Almost all foreign financial institutions now provide Americans’ account and balance information directly to the IRS, too.
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, filing an FBAR means filing 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.
“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
When is the FBAR filing deadline?
In the past, FBARs were due by 30th June following the end of the tax year, however since they’re due by 15th April however there’s an automatic extension applied for all Americans until October 15th.
What if I didn’t know about FBARs but I should have been filing?
Expats who haven’t been filing federal US tax returns or FBARs from abroad because they weren’t aware that they had to should consider an IRS voluntary disclosure program called the ‘Streamlined Procedure‘. The Streamlined Procedure offers a penalty-free path to compliance. Expats who have been filing federal tax returns but not FBARs on the other hand should consider the Delinquent FBAR Submissions Procedures program.
Penalties for not filing (or incorrect filing) FBARs are harsh, starting at $10,000 a year for unintentional errors, and furthermore the IRS is receiving foreign account details (including account balances) directly from foreign banks. As such, they are in a position to correlate this data with the information submitted on FBARs, or see if an FBAR should have been filed but wasn’t.
If you have any doubts or questions about your situation, don’t hesitate to contact an expat tax specialist for some advice.