How Do I File an FBAR? Everything US Expats Need to Know
The US has a citizenship based taxation system, meaning all US citizens (as well as green card holders) are required to file US taxes, wherever in the world they may reside.
This means American expats may find themselves having to file both US taxes as well as foreign taxes in the country where they live.
While the tax treaties that the US has with other countries generally don’t mitigate for this , there are several IRS exemptions that do, notably the Foreign Earned Income Exclusion and the Foreign Tax Credit, though expats must still file a federal US return to claim them.
US expats may also have to report their foreign financial accounts by filing a Foreign Bank Account Report, or FBAR.
Who must file an FBAR?
American individuals, corporations, partnerships and trusts that have a financial interest in or signatory authority over foreign financial accounts must file an FBAR if the total, combined value of the foreign accounts exceeds $10,000 at any time during a tax year.
Any account held at a foreign financial institution qualifies, including checking and saving accounts, brokerage accounts, securities accounts, and all types of investment accounts.
How do file an FBAR?
FBARs should be filed by filing FinCEN form 114 online by October 15th.
FinCEN form 114 asks expats to provide details of all of their foreign financial accounts, including the institutions where the accounts are held, and the maximum balance held in each account during the tax year.
“United States persons are required to file an FBAR if they had a financial interest in or signature authority over at least one financial account located outside of the United States and the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year.”
– the IRS
While FBARs have been a filing requirement since 1970, it’s only since the 2010 Foreign Account Tax Compliance Act (FATCA) that the IRS has been able to enforce FBAR filing.
FATCA requires foreign financial institutions (i.e. banks and investment firms) to report their American account holders to the IRS, including contact and balance information. Foreign financial institutions that don’t comply are subject to fines when they trade in US markets.
As all foreign banks trade in US markets, nearly all are now providing the IRS with this information – a total of around 300,000 to date.
Penalties for not filing FBARs are steep, starting at $10,000 per year, and as the IRS is now aware of who should be filing, it’s important to file to avoid penalties.
Catching up with FBAR filing
Expats who weren’t aware that they have to file FBAR and who should have been filing can simply back file them, so long as they haven’t been contacted by the IRS yet.
If they have been contacted by the IRS, it may be more complicated, so we recommend that any expat who has been contacted by the IRS regarding delinquent FBARs should consult a tax attorney.
Expats who are behind with both their FBAR and federal tax return filing can either simply back file both if they are just one of two years behind. Expats who are three or more years behind meanwhile can catch up without facing penalties by using the Streamlined Procedure IRS amnesty program, again so long as the IRS hasn’t contacted them yet.