Many Americans today, whether they live on U.S. soil or abroad, have accounts in non-U.S. financial institutions. If you're a U.S. taxpayer with money in a foreign account, you may have to file a Foreign Bank Account Report (FBAR) to declare your funds to the federal government. Failing to file an FBAR when you're required to do so can result in penalties and fines.
If you're a California resident and unsure if you have to file an FBAR, or you're facing FBAR filing penalties, you can contact a qualified California tax attorney to protect your interests and devise a solution for you.
FBAR Reporting Requirements
If your name is on a foreign financial account and it reaches a value of $10,000 at any point during the calendar year, you must file an FBAR. The account might not be in your name, but if you have signing authority, you still have to file. If the account only reaches $10,000 for a short period of time, you still have to file.
- Bank accounts: Checking accounts and savings accounts
- Securities accounts: Brokerage accounts and securities derivatives or other financial instruments accounts
- Commodity futures or options account
- Insurance policies with a cash value
- Mutual funds and similar pooled funds
- Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution
Keep in mind that the $10,000 minimum applies to all of your foreign accounts. If you have a cumulative $10,000 in all accounts, then you must file an FBAR.
What counts as a foreign account?
If an account is located outside the U.S., it is foreign. For purposes of the FBAR, the U.S. includes U.S. territories. In this case, a foreign account has more to do with the physical location of the account than the financial institution hosting it. For example, if you hold an account with the New York branch of a German bank, your account is not foreign. The bank is German, but the account is physically located at the New York branch, on U.S. soil. Similarly, if you hold an account at the branch of a U.S. bank located in Berlin, Germany, your account is foreign because it is physically located outside U.S. soil.
Who is required to file an FBAR?
Any U.S. person must file an FBAR, including citizens and residents. Corporations, partnerships, limited liability companies, and trust and estate funds must also file an FBAR if they have foreign accounts that accumulate more than $10,000. Also, minor children are not exempt from filing an FBAR due to their age. If a child is a U.S. citizen or resident and has a foreign financial account with more than $10,000, they must also file an FBAR. A parent or legal guardian can submit an FBAR on a child's behalf.
Married couples should also keep in mind that in most situations, you cannot file a joint FBAR. If you have a joint foreign account, and it's your only account—or only one of you has a separate account—then you can file a joint FBAR. Otherwise, you and your spouse must each file your own FBAR.
Why do I have to file an FBAR?
The purpose of the FBAR is for the U.S. government to keep track of U.S. persons' financial accounts abroad. The government tries to prevent individuals and organizations from hiding money in foreign accounts for illegal purposes, such as tax evasion or funding terrorism.
For this reason, your requirement to file is not necessarily based on your taxpayer status. You don't file an FBAR with the Internal Revenue Service (IRS); you file it with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN). If you're exempt from filing a federal tax return, you may still have to file an FBAR.
How to File an FBAR
You must fill out FinCEN Form 114 to file an FBAR. The FBAR is due the same day federal taxes are due, April 15. If you live abroad, you automatically receive a six-month extension and may file it by October 15. If you're late on filing your FBAR, you don't need to request an extension.
You must use FinCEN's electronic filing system, BSA E-Filing, to submit your FBAR. You do not submit your FBAR with your federal tax return to the IRS. You do not need to register for an account with the BSA E-Filing if you're an individual filing your FBAR. Institutions and financial representatives (such as tax attorneys and accountants) must create accounts, however.
Do I Still Have to Report Foreign Accounts if I Have Less than $10,000?
If you earn worldwide income, you may still have to report it on your federal tax return. Even if you have less than $10,000 in your account, the IRS still needs to know that you have the account. Not reporting it does not mean that the IRS won't find your foreign account.
Due to requirements under the Foreign Account Tax Compliance Act (FACTA), foreign banks must report their U.S. account holders to the U.S. government. So if you don't report your foreign account to the IRS, your foreign financial institution will.
Do I Pay Tax on an FBAR?
Remember that an FBAR is not a tax return. It's not a statement saying how much you owe; it's merely a report acknowledging the existence of your foreign assets totaling $10,000 or more. Just as you do not owe tax on your FBAR, you cannot receive a refund based on your FBAR, either.
Can You Defer Filing an FBAR?
If you live abroad, your FBAR filing date is automatically deferred from April 15 to October 15 if you fail to file it on time. In some cases of natural disasters, such as the California and Oregon wildfire in 2020, FinCEN might extend the deadline further. If you're responsible for filing an FBAR, always check the deadlines and possible extensions.
It's possible to file an FBAR late. The BSA E-Filing system has a late option and allows you to select a reason for why you're filing late.
Are There Exceptions to FBAR Filing?
If you meet certain conditions, you may be exempt from filing an FBAR. Below are some examples of accounts and entities you do not have to declare with an FBAR:
- A consolidated FBAR
- Correspondent/Nostro account
- Governmental entity
- International financial institution
- IRA owners and beneficiaries
- Tax-qualified retirement plan participants and beneficiaries
- Certain accounts you have signature authority over but no financial interest in
- Certain trust beneficiaries
- United States military banking facility
The IRS Offshore Voluntary Disclosure Program
The IRS used to allow holders of offshore accounts to refrain from reporting their foreign assets and accounts through the Offshore Voluntary Disclosure Program. This program ended in September 2018, however. You can file delinquent FBARs from previous years, as long as you provide a reason as to why they're late. If you're delinquent on your FBAR filing, you could face either civil or criminal penalties.
What Are the Penalties for Not Filing an FBAR?
Failure to file the FBAR can result in criminal or civil penalties. The IRS evaluates each case separately and issues penalties accordingly. Your failure could be willful or non-willful; willful failure has greater penalties. But if the IRS accuses you of willful failure to file, the agency must build a case against you proving that you knowingly neglected to file an FBAR. A non-willful failure to file results in a $10,000 fine. A willful failure to file carries a fine of $100,000 or half of the amount in your foreign bank account.
If you have a non-willful failure to file, the IRS is unlikely to press criminal charges against you. If the IRS does pursue criminal charges, you could face as much as $500,000 and up to 10 years in prison. The IRS could charge you with willfully failing to file an FBAR, knowingly filing a false FBAR, tax evasion, tax perjury, or tax obstruction.
Exceptions for FBAR penalties
Even if you live abroad and may not owe any U.S. tax, you must still file a federal tax return if you're a U.S. citizen or resident. Some states also require you to file state taxes if you live abroad. If you reported the income from your foreign accounts on the U.S. tax returns you file, and if you paid tax already on this income, the IRS will not impose a penalty for failure to file a delinquent FBAR
Keep in mind that unlike tax returns, FBARs are not subject to being audited. The IRS may, however, look at your FBAR through other audit processes
Need to File Your FBAR Today?
Federal tax filing requirements are confusing enough—add foreign accounts and assets to the mix, and you can quickly become overwhelmed. If you have questions about your FBAR filing requirements or would like assistance filling one out, contact a California Tax Attorney today for an initial consultation.