For many Americans living abroad, learning that they have to file a US tax return is a surprise. Furthermore, the need to research head-scratching terms like “how to file FBAR” is often frustrating.
The reason US tax season triggers headaches around the world is due to the US’s citizen-based taxation system. Under a citizenship-based taxation schema, all US persons (i.e. citizens and permanent residents) are obligated to file a federal tax return, regardless of whether or not they live in the US. Even those born abroad with no legal, financial, or cultural ties to the US may need to file a return if one or both of their parents were US citizens. (These folks are referred to as Accidental Americans.)
In addition to filing a federal tax return, some US expats may also have other reporting obligations. One of the most common examples is the Foreign Bank Account Report, or FBAR.
How to file FBAR online
The FBAR filing requirement was originally introduced through the Bank Secrecy Act (BSA) of 1970. The original intent was designed to identify and deter money laundering. In recent years, especially as the national debt and deficit have increased, the US government has been particularly tenacious when it comes to enforcing FBAR filing. This is done with the goal of detecting and preventing those with money hidden abroad from dodging taxes.
But in order to identify the bad actors, the government has to look at the FBARs of anyone who meets the filing requirements. This includes many everyday, law-abiding US-Americans living abroad. FBAR enforcement has ramped up in recent years. Unfortunately, significant penalties are possible for those subject to file an FBAR but don’t (sometimes even when it’s unintentional).
Who needs to file an FBAR?
Anyone with $10,000 or more in foreign-registered financial accounts at any point during the calendar year must file an FBAR. This rule applies even if the $10,000 is distributed between multiple accounts.
You may be wondering, “What exactly is a foreign financial account?”. A financial account is any account with a cash balance registered outside of the US and its territories. That includes all bank accounts and most investment accounts (often including foreign pension or retirement plans).
Beyond reporting their own personal accounts, those required to file an FBAR must also report any account they…
- Have signature authority over
- Control of (direct or indirect)
- Or any other type of financial interests
This is applicable even if an account isn’t registered in someone’s name. This is often the case for business bank or investment accounts registered in a business or trust’s name (among others). Fortunately, you can file your FBAR online. We’ll walk you through the steps below.
Where do I file the FBAR online?
Rather than reporting to the IRS, FBARs are reported to the Financial Crimes Enforcement Network (FinCEN). You can securely file the relevant form, FinCEN Report 114, online through the BSA E-Filing System.
How do I file FBAR 2023 online?
FinCEN form 114 is one of the more straightforward US tax forms to file. It requires that expats enter their personal and contact information, as well as the details for all their foreign accounts.
For each account, expats should enter the…
- Account name
- Account number
- Type of account
- Name and address of the bank or other financial institution where the account is held
- Maximum account balance during the tax year
Records of this information should be kept for at least five years after filing.
When entering phone or account numbers, expats should omit all formatting such as spaces, hyphens, or parentheses, and when entering maximum account balances, expats should round them up to the nearest dollar.
Expats should convert non-dollar account balances into dollars before entering them on FinCEN form 114 using the Treasury Reporting Rates of Exchange for the last day of the relevant tax year.
What is the FBAR filing deadline in 2023?
FBARs for the 2023 calendar year (in other words, your 2022 tax return) are technically due on the same day as the deadline for US federal tax returns: April 18th, 2023.
Many US expats submit their FBARs the same day as their tax returns to get it over and done with one fell swoop.
Can the FBAR deadline be extended?
No worries. If you miss the April 18th deadline, the FBAR deadline for US persons abroad is automatically extended to October 15.
💡 Pro Tip
Deadlines are limited to business days and avoid legal holidays. In 2023, October 15th is a Sunday, so the deadline is automatically extended to Monday, October 16, 2023.
There is no process for requesting or submitting an FBAR extension. It comes automatically to those who fail to file by the original deadline. Additional extensions are sometimes granted in very specific scenarios, such as to those who have been impacted by a natural disaster. Because of the existing six-month extension, though, requests for additional personal extensions are typically not accepted.
What happens if you file an FBAR late?
If you forgot to file an FBAR unintentionally, don’t panic — there’s an amnesty program called the Delinquent FBAR Submission Procedures which allows those who accidentally fall behind on their FBARs to catch up with little to no penalty.
In order to qualify for this program, you must:
- Have filed late unintentionally (due to confusion or not being aware of the requirements)
- Apply before the IRS reaches out to you regarding late or missing FBARs
- File your last six FBARs (if applicable) and explain why they were late
FBARs filed under the Delinquent FBAR Submission Procedures won’t necessarily be subject to audit, but they can be, so accuracy is important.
Note: Many people who realize they’re behind on their FBAR filing may also realize they’re behind on their US tax filing obligations as well. If you’re behind on your federal tax returns rather than (or in addition to) FBARs, you can take advantage of a separate program called the Streamlined Compliance Procedures.
What happens if I don’t file an FBAR?
If you didn’t file an FBAR because you were unaware you were required to do so, you can capitalize on the Delinquent FBAR Submission Procedures (more on that below).
If you intentionally failed to file an FBAR, however, you don’t qualify for this program. Further, you are subject to steep financial penalties. These start at $10,000 but can reach as high as $100,000 (or 50% of the account’s value at the time you failed to file — whichever is greater). In some cases, you may even be subject to criminal penalties.
How does the IRS learn about foreign income?
In 2010, Congress passed the Foreign Account Tax Compliance Act (FATCA). This law requires foreign financial institutions to report the account information of any US person to the US government. This is something worth learning more about when deciding whether to open a foreign bank account.
With citizens’ and permanent residents’ foreign bank account information now automatically available to the US government, identifying (and, consequently, prosecuting) non-compliance is easier than ever. This makes staying on top of your FBAR and other tax/reporting obligations all the more important.
Are foreign assets reported on an FBAR?
Those living abroad with foreign financial assets in excess of $200,000 at the end of the calendar year or $300,000 at any time during the year must report them. However, these are not reported on the FBAR, but separately through IRS Form 8938. (Note the threshold varies if you reside stateside, or file a joint tax return with your spouse.) But what, you might be wondering, is the difference between Form 8938 and FBAR?
The main difference is that FBARs are filed with FinCEN, and encompass only foreign financial accounts. Form 8938 is filed with the IRS and encompasses financial accounts held in foreign financial institutions as well as financial assets, such as:
- Foreign stock/securities, whether held in a foreign financial account or elsewhere (Note: While foreign financial accounts containing stock/securities are subject to reporting, the contents within them do not need to be reported separately)
- Foreign partnership interests
- Foreign mutual funds
- Foreign life insurance policies or annuity contracts
- Foreign hedge funds
- Foreign private equity funds
Foreign assets that are not subject to reporting on Form 8938 include:
- Foreign financial accounts held in a foreign branch of a US-based financial institution and vice versa (i.e. foreign financial accounts held in a US branch of a foreign financial institution)
- Foreign financial accounts for which you have signature authority, but no personal financial interest in
- Indirect interests in foreign financial assets through an entity
- Domestic mutual funds in foreign stocks/securities
- Foreign real estate held directly or through a foreign entity (Note: While real estate held through a foreign entity is not subject to reporting in itself, the overall foreign entity is)
- Personally-held foreign currency (i.e. physical cash)
- Precious metals held directly
- Personal property held directly (i.e. cars, furniture, art, etc.)
- Payments from a foreign social security system (or equivalent)
Who is exempt from FBAR filing?
If you don’t have any foreign financial accounts, or if your foreign financial accounts total less than $10,000, you don’t need to file an FBAR. In very specific circumstances, certain accounts (and/or the individuals who hold them) may be exempt from the FBAR. An example of this may be if the account is held by an entity owned by or affiliated with the US government, including US military foreign financial institutions like the Navy Federal Credit Union.
How do I know if I need to file an FBAR?
If you’re still unsure whether you need to file an FBAR or how to do it, you might feel most reassured after speaking with a tax professional like the ones at Bright!Tax. Given the hefty penalties and high rate of enforcement, the stakes can feel very high, making an already tedious process (filing taxes and supporting paperwork such as the FBAR) extremely stressful.
But, that’s why we’re here! At Bright!Tax, we’re not just experts in international tax – we’re more often than not fellow expats who really get how doing taxes abroad is just one more thing that makes living outside the US a little more challenging. We want to do everything we can to ease this burden for you so you can get back to enjoying your life abroad.