FBAR Reporting (What You Should Know About Financial Accounts)

FBAR Reporting (What You Should Know About Financial Accounts)

FBAR Reporting (What You Should Know)

Each year, US Persons who have foreign bank and financial accounts may have to file the annual FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114) to report their foreign account information to the US Government. While the FBAR has been around for over 50 years, in the past 10 years or so the Internal Revenue Service has begun aggressively enforcing matters involving noncompliance with foreign account filing and reporting. When Taxpayers do not timely file the annual FBAR, it may lead to significant fines and penalties — and these penalties can be extremely harsh and unfair. So much so, that there is currently an FBAR case at the Supreme Court on the issue of how FBAR penalties should be issued for civil non-willful violations – which are the most common types of violations. Let’s look at six important facts about FBAR reporting you should know.

You Have Until October to File the FBAR and Not be Late

Currently, the FBAR is on an automatic extension for filing. This is very important for taxpayers to be aware of because even if they did not file the FBAR in April — and did not file an extension to file their tax return — that does not mean that they are currently late for filing this year’s FBAR. In other words, the US government provides for an automatic extension until October to file the FBAR form, which means if you are reading this before October 15, you may not have missed the deadline just yet. Taxpayers should confirm each year to ensure the automatic extension is still valid.

FBAR is More than Just Bank Accounts

The FBAR consists of more than just foreign bank accounts. It involves many different types of foreign financial accounts, including investment accounts, stock accounts, mutual funds (and other pooled funds, even if not technically in an account), pension plans, and certain foreign life insurance policies. While it may be more difficult to obtain the maximum account value for some of these other bank accounts – even if taxpayers are unable to identify the exact account maximum account value — they are still required to report the account/asset on the FBAR if it is otherwise FBAR reportable.

Aggregate Total Value vs Per Account Value

It is very important that taxpayers take note of the fact that foreign account reporting is not based on a per account value, but rather on the annual aggregate total value of the accounts combined for each year. For example, if a person has seven accounts that each have $5,000 in them, they would still report all of the accounts on the annual FBAR — even though not one single account exceeded $10,000.

FBAR is Submitted Separately From Your Tax Return

For the past eight or so years, FBAR filing has moved to electronic filing — and it is filed separately and distinct from the US tax return. The FBAR is filed directly on the FinCEN website, using FinCEN Form 114.

6013(g) Election vs Treaty Election as a Foreign Resident

This is one aspect of FBAR reporting that can get complicated.  For example, if a non-resident alien (NRA) wants to file a joint tax return with their US Person spouse, they may be able to make a Section 6013(g) election to do so. And, this type of election does not mean that the person is considered a US person for FBAR purposes. Conversely, if a US person lives overseas in a treaty country and makes an election to be treated as a foreign person for US tax purposes — that does not eliminate the requirement to have to file the annual FBAR.

Current Year vs Prior Year Non-Compliance

Once a taxpayer misses the reporting requirements for prior years, they will want to be careful before submitting their current year FBAR. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass file previous FBARs without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely FBARs, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

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