FBARs – what, why who and when:
US persons who own foreign financial accounts with an aggregate value over $10,000 are required to file a Foreign Bank Account Report (FBAR). On the face of it, a relatively simple exercise. However, let’s take a few minutes to understand the details behind who should file, why, when and what the consequences are if you do not file.
Who should file?
The function of the FBAR form is to ensure are reporting any and all foreign financial interests that they own or have signature authority over, if they total over $10,000 in aggregate in any given year.
The form needs to state the highest balance in the calendar year that is being reported. Given the accounts are likely to be held in a foreign currency, one should use the stated exchange rate to make the conversion into USD. The US Treasury will publish the rate at the end of each year. Do note that accounts holding US Dollars are not exempt if they are held with institutions outside of the United States.
A US taxpayer can be a US citizen, alien residents (including green card holders) or entities that are created and organized under the laws of the US.
Why is it required?
FBAR was introduced by the Bank Secrecy Act of 1970. Reporting is via Form 114 to the US Treasury Department’s Financial Crimes and Enforcement Network (FinCEN), not the IRS.
The intention is to prevent tax evasion and ensure foreign assets held by US citizens are visible to the US government.
When are FBARs due?
FBARs are due annually by April 15th. Americans living overseas receive an automatic extension to October 15th.
What information is required on the FBAR Form 114?
The FBAR must include the following information:
- The name of the financial institution where the account is held
- The address of the financial institution
- The account number
- The highest balance of the account during the year
- The type of account, such as a checking account, savings account, or investment account
- The owner(s) of the account and the owner’s taxpayer identification number
What are the consequences of non-compliance?
If you are required to file a FBAR and do not, you are at risk of being fined $10,000. Up until 2022, this was a $10,000 fine per account you failed to report. This was changed in 2023 to a single fine for non-compliance of $10,000.
FBARs are hard to ignore if you are a US expat living abroad – your Tax Advisor will often offer to file on your behalf or direct you to the FinCEN website. Non-compliance, in our experience, is often down to a lack of awareness for new expats or where individuals are unadvised.
However, it is easy to overlook filing your FBAR if you are living in the US. You might be filing your own tax return and therefore are unaware of FBAR requirements, or your US-based tax advisor may not prompt you for details on your foreign assets as it is not customary for Americans to own non-US financial accounts.
The process of filing is relatively quick and easy to complete, and the consequence of non-compliance is relatively significant.
With the April tax deadline fast approaching, make sure you’re checking on your foreign financial assets and preparing to file your FBARs.