FBAR Requirement Under the Substantial Presence Test 

FBAR Requirement Under the Substantial Presence Test

FBAR Requirement Under the Substantial Presence Test 

One of the most complicated aspects of filing the FBAR (Foreign Bank and Financial Account Form aka FinCEN Form 114) is oftentimes just determining who has to file the form — and what foreign accounts are reportable. In general, Taxpayers who are considered US Persons under United States Tax Law may have an FBAR reporting requirement. It is important to note, that the term US Person is not limited to US Individuals “aka People.” Rather, the term also includes Domestic Corporations, Trusts and Estates. And, when considering which categories of individuals are required to report the annual FBAR — it is not limited to US Citizens, but also includes Lawful Permanent Residents (Green-Card Holders) and Residents who meet the IRS Substantial Presence Test.

What is the Substantial Presence Test for FBAR?

The Substantial Presence Test is a “counting days in the United States test.” When a non-permanent resident resides in the U.S. for a certain amount of days (at least 31-days in the current year) and does not qualify for an exclusion or exception (Closer Connection Exception), then they are taxed as a US Person — and are also required to file an annual FBAR to disclose their foreign accounts, assets and investments — in addition to other international information reporting forms.

How does FinCEN Define US Person?

Here is the definition of US Person under FinCEN (Financial Crimes Enforcement Network):

United States Person.

      • “United States person means United States citizens (including minor children); United States residents; entities, including but not limited to, corporations, partnerships, or limited liability 6 companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.”

Example of Substantial Presence Test Calculation

The IRS Substantial Presence Test generally means that you were present in the United States for at least 31 days in the current year and a minimum total of 183 days over 3 years, using the following equation:

      • 1 day = 1 day in the current year

      • 1 day = 1/3 day in the prior year

      • 1 day = 1/6 day two years prior

Example A: If you were here 100 days in 2016, 30 days in 2015, and 120 days in 2014, the calculation is as follows:

      • 2021 = 100 days

      • 2020= 30 days/3= 10 days

      • 2019 = 120 days/6 = 20 days

      • Total = 130 days, so you would not qualify under the substantial presence test and NOT be subject to U.S. Income tax on your worldwide income (and you will only pay tax on money earned while working in the US).

Example B: If you were here 180 days in 2021, 180 days in 2020, and 180 days in 2019, the calculation is as follows:

      • 2021 = 180 days

      • 2020 = 180 days/3= 60 days

      • 2019= 180 days/6 = 30 days

      • Total = 270 days, so you would qualify under the substantial presence test and will be subject to U.S. Income tax on your worldwide income, unless another exception applies.

FBAR Amnesty Program Summary

The FBAR Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting when they met the substantial presence test in prior years.

Some of the more common programs, include:

Can I Just Start Filing FBAR This Year Instead?

No, unless the current year is the first-year you had an FBAR Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an FBAR Quiet DisclosureThe 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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