5 FBAR Exceptions to Reporting Requirements: IRS Overview

5 Main Exceptions to FBAR Filing

5 Main Exceptions to FBAR Filing

5 Main Exception to FBAR Filing Revisited: Each year, US Persons who have Foreign Bank and Financial Accounts may have to file the annual FBAR (FinCEN Form 114) in addition to their tax return filing requirement. Not all US Taxpayers have to file the FBAR — instead, it is limited only to US Persons who meet the threshold requirements to have to report their foreign bank and other account information to FinCEN (Financial Crimes Enforcement Network). And, even if a US person is otherwise required to file the annual FBAR, they may qualify for one of the exceptions to filing. Let’s review the five main exceptions to having the file an annual FBAR:

FBAR Exception 1: Non-US Person

When a person is considered a non-resident alien then they are generally not required to file the annual FBAR for any foreign accounts they own themselves. Moreover, even if a nonresident alien makes certain elections — such as a 6013 election — they generally do not qualify as a US person who is required to file an annual FBAR.

FBAR Exception 2: Certain Accounts Jointly Owned by Spouses

Sometimes, when there are joint accounts that are being reported by one spouse, then the other spouse is not required to report the FBAR if the only accounts that the other Spouse has are the joint accounts (although they may still consider filing the FBAR).

As provided by FinCEN:

• • • Certain Accounts Jointly Owned by Spouses. The spouse of an individual who files an FBAR is not required to file a separate FBAR if the following conditions are met:

      • (1) all the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse;

      • 2) the filing spouse reports the jointly owned accounts on a timely filed FBAR electronically signed; and

      • (3) the filers have completed and signed Form 114a, “Record of Authorization to Electronically File FBAR’s” (maintained with the filers’ records).

    • Otherwise, both spouses are required to file separate FBARs, and each spouse must report the entire value of the jointly owned accounts. 

FBAR Exception 3 Correspondent/Nostro Accounts

Correspondent and Nostro accounts are the type of accounts that are more internal-based and used primarily to transfer or otherwise facilitate certain international/foreign settlements to completion.

FBAR Exception 4: IRA Owners and Beneficiaries

When a taxpayer is the owner or beneficiary of an IRA account, the IRA account may have ownership of other foreign financial accounts — even so, the  Foreign Financial Accounts held within the IRA do not have to be individually parsed out and reported on the FBAR.

FBAR Exception 5: Trust Beneficiaries

When a US person is a trust beneficiary with a certain financial interest(s), they are still not required to follow the FBAR — as long as certain conditions are met. As provided by FinCEN:

Trust Beneficiaries

• • • A trust beneficiary with a financial interest described in section (2)(e) of the financial interest definition is not required to report the trust’s foreign financial accounts on an FBAR if the trust, trustee of the trust, or agent of the trust:

      • (1) is a United States person and

      • (2) files an FBAR disclosing the trust’s foreign financial accounts.

FBAR Amnesty Program Summary

If a Taxpayrs is out of compliance for prior year noncompliance with FBAR or FATCA, there are several FBAR Amnesty Programs that have been developed by the Internal Revenue Service in order to assist Taxpayers who are already out of compliance for non-reporting.

Some of the more common programs, include:

• Voluntary Disclosure Program (VDP or “New” OVDP)
• Streamlined Domestic Offshore Procedures
• Streamlined Foreign Offshore Procedures
• Delinquency Procedures
• Reasonable Cause

Can I Just Start Filing FBAR This Year Instead?

No, unless the current year is the first-year the Taxpayer had an FBAR Reporting requirement. Otherwise, if the Taxpayer had a prior year reporting requirement, but only begin to start filing in the current year, it is referred to as “filing-forward” — and it is illegal. In the world of offshore disclosure, this is referred to as an FBAR Quiet Disclosure.

The IRS has warned taxpayers that if they get caught in a FBAR Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.

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