FBAR Primer: Foreign Bank & Financial Account Reporting (101)

FBAR Primer on Foreign Bank & Financial Account Reporting

FBAR Primer on Foreign Bank & Financial Account Reporting

When it comes to international reporting of foreign bank and financial accounts, the FBAR is the most common form that needs to be filed. Unlike other forms, the FBAR is generally required for nearly all types of foreign bank and financial accounts, such as bank accounts, investment accounts, foreign pensions, and life insurance policies. Unfortunately, US taxpayers can get caught up in the fear-mongering that they will find online when approaching the preparation of the FBAR form – especially if the taxpayer has undisclosed accounts from prior years. In addition, a good portion of the information online is outdated and inapplicable to most taxpayers who may only have a few bank accounts abroad. Here is a brief primer for individuals and other US persons who will be filing an FBAR in the current year.

What Is the FBAR Form?

The FBAR is an electronic form that is submitted directly on the FinCEN website and is not submitted to the IRS. The IRS is only tasked with penalty assessment and enforcement. The FBAR form is used to report maximum account values for a US person who has foreign bank accounts in which on any day of the year the annual aggregate total of the USD value of those accounts exceeds $10,000. It is important to note that it is not $10,000 per account, but rather $10,000 in aggregate total to determine whether or not the annual threshold reporting value is met.

Is the FBAR a Tax Form?

One very important aspect of the FBAR form is that it is not actually a tax form — and in fact, has literally nothing to do with taxes aside from the fact that the IRS was assigned with FBAR enforcement. The form is required even if a taxpayer does not have any taxable income generated from the foreign accounts. Moreover, even if the taxpayer does not have to file a US tax return in the current year, if they qualify as a US person for tax purposes and they meet the threshold requirements, then they must still file the FBAR form.

Which Overseas Accounts Do I Include?

Essentially, nearly all types of foreign investment and bank accounts are included on the FBAR. Some of the more common types of accounts include bank accounts, investment accounts, stock accounts, life insurance policies, and foreign pension plans.

Maximum Account Value

In a perfect world, the taxpayer would obtain the accurate highest maximum account value during the reportable year and include that on the FBAR form. In reality, this may not be feasible. Especially with the Coronavirus still limiting travel and several foreign financial institutions requiring taxpayers to appear in person to obtain specific information, it simply may not be feasible to obtain all of the exact information. In addition, some foreign banks do not hold onto taxpayer account information the same way they do in the United States, while other types of accounts such as passbook accounts are only updated when the taxpayer requests that the Foreign Financial Institution update the book. Thus, taxpayers should do their best while making a reasonable and diligent search under the circumstances.

If the FBAR is Missing Account Information, Do I Still File?

Yes, just because the taxpayer may be missing certain information or is unable to obtain all of the necessary information for a perfect FBAR filing, it does not mean that they are otherwise exempt from having to file the form. It is not a test and therefore, taxpayers should always try to file the form timely by including as much information as they can obtain.

How Do I Submit the FBAR?

Since around 2013, the FBAR form is primarily electronic. The taxpayer must submit the form electronically on FinCEN Form 114 — unless certain exceptions or exclusions apply.

What if I Need an Extension of Time to File FBAR

For the past few years, the FBAR has been on automatic extension, which means taxpayers have until October to file the form without having to request a specific extension. At the time of this article (March 6, 2022), the IRS has not yet published any additional information confirming that the automatic extension will continue in 2022 for the 2021 FBAR nor that any of the information or procedures have changed, but it is always important to check in anticipation of the filing due date.

What if I Missed Prior Year

If a taxpayer missed their reporting requirements in prior years, then they have to be careful to just start filing in the current year or submit mass filings from prior years outside of one of the offshore amnesty procedures — in order to avoid making a Quiet Disclosure, which could result in significant fines and penalties. The IRS has several safe programs a Taxpayer can utilize in order to get into compliance and in fact, some of these programs may result in a complete penalty waiver.

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