Who Has to File FBAR (Less Common FinCEN 114 Situations)

Who Has to File FBAR (Less Common FinCEN 114 Situations)

Unforeseen Foreign Account Filing Situations

The FBAR is used to report Foreign Bank and Financial Accounts to the IRS and the US government. In the most common situation, a US person will have a foreign bank account overseas –– or multiple accounts –– in which the aggregate total exceeds $10,000. As a result, the taxpayers are required to file a FinCEN Form 114 to disclose their interest in foreign accounts. Even though the majority of accounts reported on the FBAR Are bank accounts, the reporting requirements include more than just a checking or savings account. When a taxpayer has other types of foreign financial accounts such as foreign mutual funds, foreign stock accounts, foreign life insurance policies, and/or foreign pension plans they may also have enough by filing requirement. When a taxpayer does not file the FBAR timely or it is incomplete, they risk fines and penalties. Let’s take a look at a few scenarios in which a person may unexpectedly have to file an FBAR. 

Business Account Ownership & FBAR

One situation that has become more common for the globalization of the US economy is when a US person owns an entity such as an S-corporation or LLC and has foreign bank accounts. It is not uncommon for even a small US business to have a foreign bank account for the simple fact it is easier to operate in local currency — and many foreign countries require the taxpayer to have a local account in order to exchange currency for business purposes. Therefore, if you are a US person and you have a US business that owns foreign bank accounts is important to assess the maximum value of those accounts to determine whether you have FBAR filing requirements.

Business Account Employee & FBAR

Another situation in which a US person associated with a US business may have an FBAR filing apartment is when they are an Employee, Director, or Officer of the company and have signing authority on behalf of the company for a foreign account. Even though the employee does not have ownership over the foreign account, if they have any type of signature or similar authority over the account they’re still required to file a FinCEN Form 114.

Joint Accounts & FBAR

When a person has a foreign account and it is a joint account and both account owners are US persons, they are both required to file the FBAR (there is a limit exception for spouses which applies in some, but not all scenarios). Even if one US person is the majority owner of the funds in the account, the IRS still requires taxpayers who are jointly identified on a bank account to both file the FBAR form. If one of the joint account holders is a non-US person then limited identification of the non-US person may still be required.

Signatory Authority over Foreign Accounts Too

Unlike many other types of international information reporting forms, the IRS does not require the taxpayer to have actual ownership over the account to have to file the FBAR form. In a common situation, a foreign relative may have identified a family member as a signatory on the account in case they need someone to be able to access the account. If the family member is a US person, they are required to report the account on the FBAR if the total value of the accounts they have signature authority or ownership over exceeds $10,000. It does not matter that the US person does not have any ownership or interest in the account — it is still required to be filed.

Current Year vs. Prior Year Non-Compliance

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

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

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