Financial Accounts on the FBAR
Financial Accounts on the FBAR: When a U.S. Person realizes for the first time they have to file the FBAR, it can be a traumatic experience for the taxpayer. It is not so much that the form is very complicated, as much as just trying to decipher why the acronym FBAR specifically refers to Foreign Bank Accounts, but it also includes Foreign Bank and Financial Accounts. It is not uncommon for filers to only include their bank accounts when they first start filing the FBAR, only to learn in later year filings that the term financial account is far more encompassing then just bank accounts.
What Types of Financial Accounts Go on the FBAR?
Let’s review how the IRS categorizes what types of financial accounts are reported on for FBAR:
The IRM refers to the Internal Revenue Manual. While it is not a force of law, it is a good starting point to help Taxpayer glean information regarding how IRS enforcement and compliance procedures — including the FBAR. For reference, even though the FBAR is a FinCEN (Financial Crimes Enforcement Network) form — since 2003 penalties have been enforced by the IRS.
Here’s what the IRM has to say about financial accounts:
“(1) A reportable financial account includes a: Bank account, such as a savings deposit, demand deposit, checking, time deposit (CD), or any other account maintained with a financial institution or other person engaged in the business of banking. Securities account, securities derivatives account, or other financial instruments account held with a person engaged in the business of buying, selling, holding or trading stock or other securities. Other financial account, as defined in (2) below. IRM 22.214.171.124.2
(2) “Other Financial Account” is defined by the regulations to include:
- An account with a person in the business of accepting deposits as a financial agency.
- An insurance or annuity policy that has a cash value. Note: The preamble to the regulations clarifies that there need be no current payment of an income stream to trigger reporting. The cash value of the policy is considered the account value.
- An account with a person that acts as a broker or dealer for futures or options transactions in any commodity on or subject to the rules of a commodity exchange or association.
- A mutual fund or similar pooled fund defined as “a fund which issues shares available to the general public that have a regular net asset value determination and regular redemptions.”
(3) The following are not considered financial accounts:
- Stocks, bonds, or similar financial instruments held directly by the person.
- Real estate or an account holding solely real estate (e.g., Mexican “fideicomiso” ).
- A safety deposit box. Note: A reportable account may exist where the financial institution providing the safety deposit box has access to the contents and can dispose of the contents upon instruction from, or prearrangement with, the person.
- Precious metals, precious stones, or jewels held directly by the person. Note: 31 USC 5314 defines “foreign financial agency” as “a person acting for a person as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to money, credit, securities, gold, or a transaction in money, credit, securities, or gold.” Therefore, a reportable account relationship may exist where a foreign agency holds precious metals on deposit or provides insurance or other services as an agent of the person owning the precious metals.
IRM 126.96.36.199.2.1 – Financial Account Exceptions
Despite the laundry list of different types of accounts that may be required to be reported on the FBAR, there are also various exceptions. Here are some of the types of foreign financial accounts that are not considered financial accounts for FBAR purposes.
(1) The following are not considered reportable financial accounts for FBAR purposes:
- An account of a department or agency of the U.S., an Indian tribe, any state or any political subdivision of a state, any territory or insular possession of the U.S., or a wholly-owned entity, agency or instrumentality of any of the foregoing.
- An account of an international financial institution of which the U.S. government is a member. (e.g., the International Monetary Fund (IMF) and the World Bank.)
- An account in an institution known as a “United States military banking facility,” that is, a facility designated to serve U.S. military installations abroad.
- Correspondent or “nostro” accounts that are maintained by banks and used solely for bank-to-bank settlements. Custodial or “omnibus” accounts held for the person by a U.S. institution acting as a global custodian, as long as the person cannot directly access the foreign custodial account.”
In conclusion, there are many different types of bank and other accounts that may be considered a financial account. Since the FBAR requires Financial Accounts to be reported, it is important to remember that FBAR includes more than just bank accounts. There are also exceptions for filing, so that some accounts either do not qualify as accounts and/or are not required to be reported on the FBAR.
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