The Basics of Reporting Foreign Bank & Financial AccountsPosted on October 1st, 2018
There is so much misunderstanding of the foreign holding reporting requirements, let’s make some sense of it all: If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report
the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).
Note: Foreign Real Estate is not generally reportable HOWEVER, if the property is held in an offshore account or foreign corporation then you would be required to report your interest in the offshore account or foreign corp. As long as you hold the property as an individual there will be no special filing requirements to report the assets.
Who Must File
United States persons are required to file an FBAR if:
1) The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States, and
2) The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability 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.
Exceptions to the Reporting Requirement
And, as usual, there are filing exceptions for the following United States persons or foreign financial accounts:
• Certain foreign financial accounts jointly owned by spouses.
• United States persons included in a consolidated FBAR.
• Correspondent/Nostro accounts.
• Foreign financial accounts owned by a governmental entity.
• Foreign financial accounts owned by an international financial institution.
• Owners and beneficiaries of U.S. IRAs.
• Participants in and beneficiaries of tax-qualified retirement plans.
• Certain individuals with signature authority over, but no financial interest in, a foreign financial account.
• Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust).
• Foreign financial accounts maintained on a United States military banking facility.
Reporting and Filing Information
A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
The FBAR is a calendar year report and is due April 15 of the year following the calendar year being reported with a 6-month extension available. FinCEN will grant
filers failing to meet the FBAR due date of April 15 an automatic extension to October 15 each year. A specific extension request is not required.
The FBAR must be filed electronically through FinCEN’s BSA E-Filing System. The FBAR is not filed with a federal income tax return.
Additional information about the FBAR can be found at: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-andFinancial-Accounts-FBAR
U.S. Taxpayers Holding Foreign Financial Assets May Also Need to File Form 8938
Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement.
Form 8938 must be filed by specified individuals who include U.S. citizens, resident aliens, and certain nonresident aliens if reporting thresholds are met.
Specified individuals living in the U.S. must file if:
• Unmarried (or Married Filing Separately) with total foreign financial assets valued at more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year, or
• Married Filing Jointly with total foreign financial assets valued at more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.
Specified individuals living outside the U.S. must file if:
• Unmarried (or Married Filing Separately) with total foreign financial assets valued at more than $200,000
on the last day of the tax year, or more than $300,000 at any time during the year, or
• Married Filing Jointly with total foreign financial assets valued at more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year
Delinquent FBAR Submission Procedures
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late. Select a reason for filing late on the cover page of the electronic form or enter a customized
explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
This is very general information, please contact your own tax professional for more information regarding your specific tax circumstances.