The Definition of Financial Account for FBAR: Golding & Golding

The Definition of Financial Account for FBAR

The Definition of Financial Account for FBAR

When it comes to FBAR (Foreign Bank and Financial Account Reporting), one of the biggest complexities of filing the form (FinCEN Form 114) is just trying to determine which specific foreign types of investments and assets are considered Foreign Financial Accounts and therefore reportable on the FBAR.  One of the key facts to consider when determining whether a foreign account is considered a foreign financial account is that in general, the FBAR is very encompassing — and includes many different types of financial accounts; in other words, it is not limited to just bank accounts. For example, other foreign account types of investments such as foreign pension plans, foreign life insurance policies with a surrender value, and foreign mutual funds are typically considered to be foreign financial accounts for FBAR purposes. The general rule is that all foreign accounts are reportable and considered to be financial accounts unless otherwise exempted excluded.

Let’s take a look at some of the basics of the definition of a foreign financial account for FBAR purposes.

As provided by the IRS:

Financial Account Financial accounts include:

• • • Bank accounts such as savings and checking accounts, and time deposits;

    • Securities accounts, such as brokerage accounts, securities derivatives accounts, or other financial instruments accounts;

    • Commodity futures or options accounts;

    • Insurance or annuity policies with a cash value (such as a whole life insurance policy);

    • Mutual funds or similar pooled funds (i.e. a fund available to the public with a regular net asset value determination and regular redemptions), and;

    • Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.

FBAR Account Examples

• • • Canadian Registered Retirement Savings Plan (RRSP), Canadian Tax-Free Savings Account (TFSA),

    • Mexican individual retirement accounts (Fondos para el Retiro) and

    • Mexican Administradoras de Fondos para el Retiro (AFORE) are foreign financial accounts reportable on the FBAR.

    • Foreign hedge funds and private equity funds are not reportable on the FBAR.

    • A foreign account holding virtual currency is not reportable on the FBAR (unless it’s a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency). These funds aren’t reportable at this time, per FBAR regulations issued by FinCEN February 24, 2011, but FinCEN Notice 2020-2 indicates FinCEN’s intention to propose amending the regulations to include virtual currency as a type of reportable account under 31 CFR 1010.350.

    • A financial account maintained with a financial institution located outside of the U.S. is a foreign financial account.

  • It is the location of the account, not the nationality of the financial institution, that determines whether an account is “foreign” for FBAR purposes. An account is “foreign” for FBAR purposes if it’s located outside the following places:

    • • The States of the United States, including the District of Columbia;

      • U.S. territories and possessions, such as:

        • • Commonwealth of the Northern Mariana Islands

          • American Samoa

          • Guam

          • Commonwealth of Puerto Rico

          • S. Virgin Islands

          • Trust Territory of the Pacific Islands

          • Indian lands as defined in the Indian Gaming Regulatory Act

    • An account maintained with a branch of a U.S. bank physically located in Germany is a foreign financial account.

      • • • Example: An account maintained with a branch of a French bank physically located in Texas isn’t a foreign financial account.

          • Example: Ed, a U.S. citizen, purchased securities of a French company through a securities broker located in New York. Ed doesn’t need to report these securities because he purchased the securities through a financial institution located in the U.S.

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