FBAR Filing — a Guide to Reporting Foreign Accounts for U.S. Expats
For U.S. expats, managing tax obligations can be particularly challenging, especially when it involves foreign financial accounts. The Foreign Bank and Financial Accounts Report (FBAR) filing, or FinCEN Form 114, is a crucial requirement. You must file this form if you have foreign accounts exceeding $10,000 in aggregate value at any point during the year. This applies to U.S. citizens, resident aliens, and certain nonresident aliens, including entities with foreign accounts.
In 2022, FBAR filings hit a record high of 1,503,807, marking a 7% increase from the previous year. This surge underscores the growing awareness among taxpayers about their reporting obligations.
There are legitimate reasons for having offshore accounts, such as convenience, investing, and managing transactions abroad. However, U.S. taxpayers must refrain from using these accounts to hide assets or avoid taxes. Failure to complete and file the required foreign bank account reporting on the existence of offshore accounts or pay taxes on these accounts can lead to civil and criminal penalties.
This guide helps U.S. expats understand the FBAR filing process, critical deadlines, and best practices to stay compliant. Whether you’re new to filing or need clarity, this guide covers all you need to know.
What is the FBAR (FinCEN Report 114)?
The FBAR is an annual report that must be filed by any U.S. person with a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other foreign financial account, exceeding certain thresholds.
A U.S. person includes U.S. citizens, residents, and entities such as corporations, partnerships, LLCs, trusts, and estates formed under U.S. laws.
You won’t incur taxes on your foreign bank account because of this form. It’s essential to understand that the FBAR is not a tax form. Instead, it serves as an informational report for U.S. authorities.
Why is FBAR Compliance Important?
FBAR compliance is a legal requirement under the Bank Secrecy Act that mandates U.S. taxpayers to accurately report their foreign financial accounts. This reporting is crucial for maintaining a transparent and accountable financial system for the U.S. government. It helps monitor cross-border financial activities and prevent illicit actions such as money laundering and tax evasion.
TIP: Consult a tax professional to understand your tax responsibilities for income from foreign accounts. This helps you stay compliant and avoid issues.
Who Needs to File?
In order to determine whether or not there is an FBAR filing requirement, all of the following must apply:
- The filer is a U.S. person
- The U.S. person has a financial account(s)
- The financial account is in a foreign country
- The U.S. person has a financial interest in the account, a signature, or other authority over the foreign financial account.
- The aggregate amounts in the accounts valued in U.S. dollars exceed $10,000 at any time during the year.
Reporting Exceptions
Certain exceptions exist where U.S. persons are not required to file FinCEN Form 114 (FBAR). If you meet any of the following criteria, you are exempt from filing:
- You have a financial interest in or signature authority over a bank account at a U.S. military financial institution operated abroad for U.S. government operations.
- You are an employee or officer of a bank regulated by U.S. authorities (such as the Comptroller of the Currency, Federal Reserve, or FDIC) and have no personal financial interest in the account.
- You work for a domestic corporation with publicly traded equity securities and have no personal interest in these accounts.
- You are an employee or officer of a domestic corporation with over $10 million in assets and more than 500 shareholders, and you have no personal financial interest in the accounts.
What Is A Foreign Financial Account For FBAR Filing?
A foreign financial account is generally located in a foreign country, including all geographic areas outside the United States. The location of an account, not the nationality of the financial institution with which the account is held, determines whether the account is in a foreign country.
How FBAR Filing Works
Filing your FBAR (FinCEN Form 114) is a straightforward but essential process for U.S. taxpayers with foreign financial accounts. The form must be filed electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System. The FBAR is due on April 15th, with an automatic extension to October 15th. Unlike your federal tax return, you don’t need to request an additional extension for FBAR filing.
When preparing your FBAR, prepare detailed information about each foreign account, including the account number, account types, the maximum value during the year converted to U.S. dollars, and the financial institution’s name and address.
For joint accounts, each person must report the entire account value unless specific spousal exceptions apply. Married taxpayers can file a single FBAR if all accounts are jointly owned and neither spouse has separate accounts, provided both spouses sign FinCEN Form 114a. If either spouse has separate accounts, both must file individually. If you need to file for prior years or amend a previous filing, this must also be done through the BSA E-Filing System.
TIP: Make sure to keep your FBAR filing records for at least six years. This helps ensure you can demonstrate compliance if you’re audited unexpectedly.
Penalties for Not Filing an FBAR
Failing to file an FBAR (FinCEN Form 114) or providing inaccurate information can lead to significant penalties. Non-willful violations may incur fines of up to $10,000 per violation. However, if the failure to file is deemed willful, the penalties are much harsher. Willful violations can result in fines of $100,000 or 50% of the account balance per violation, whichever is greater. Each year of non-compliance counts as a separate violation, which can quickly accumulate to significant amounts.
In addition to civil penalties, there are also potential criminal penalties for willful non-compliance. These can include fines of up to $250,000 and imprisonment for up to five years. If the violation occurs in conjunction with other legal violations, such as tax evasion, the fines can increase to $500,000 and the prison term can extend to ten years.
TIP: When uncertain about whether to report an account, it’s best to include it. Over-reporting is safer and helps you avoid potential penalties for missing information.
FBAR Amnesty Program
The FBAR amnesty program provides U.S. taxpayers with options to come into compliance with FBAR filing requirements if they have yet to meet deadlines or failed to file in previous years. It is designed to offer leniency and help taxpayers correct their mistakes without facing the full extent of potential penalties.
1. Delinquent FBAR Submission Procedures:
If the IRS has not contacted you about a missed FBAR, you may be eligible to use Delinquent FBAR Submission Procedures. This option is available if you properly reported all income related to the foreign accounts on your U.S. tax returns and paid any associated tax, but simply forgot to file the FBAR. To use this procedure, you must file the delinquent FBARs electronically and include a statement explaining why you are filing late. The IRS will not impose a penalty if it determines that the failure to file was due to reasonable cause.
2. Streamlined Filing Compliance Procedures
This option is available for taxpayers whose failure to report foreign financial assets and pay all tax due on those assets did not result from willful conduct. The Streamlined Procedures have two categories:
- Streamlined Domestic Offshore Procedures (SDOP): For U.S. residents. You must file amended tax returns for the last three years and FBARs for the last six years, along with a statement certifying that your failure to file was non-willful.
- Streamlined Foreign Offshore Procedures (SFOP): This is for non-U.S. residents. It is similar to SDOP but with additional benefits, such as exemption from certain penalties.
These procedures help taxpayers correct their tax filings and report their foreign financial accounts with reduced penalties.
3. Voluntary Disclosure Program
For those who willfully fail to comply, this program offers a way to come forward and report previously unreported foreign accounts. This program involves more extensive documentation and can lead to higher penalties than the streamlined procedures, but it helps avoid the risk of criminal prosecution.
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FATCA Form 8938
If you file an FBAR, you might also need to file Form 8938. Introduced under the Foreign Account Tax Compliance Act (FATCA), the form requires U.S. taxpayers to report specified foreign financial assets that exceed certain thresholds. Unlike the FBAR, which you filed with FinCEN, Form 8938 is submitted with your IRS tax return.
While both serve similar purposes, Form 8938 has higher thresholds and varies by filing and residency status. For U.S. residents, the threshold is $50,000 on the last day of the tax year or $75,000 at any time during the year for single file and $100,000 on the last day of the tax year, or more than $150,000 at any time during the year for married individuals filing jointly.
The threshold is higher for those living abroad, set at $200,000 on the last day of the tax year or $300,000 at any time during the year for single filers, and $400,000 on the last day of the tax year or $600,000 at any time during the year for married individuals filing jointly.
FBAR vs. Form 8938: Which Assets to Report
If you’re unsure about which assets to report and where to report them? Here’s a guide to help you determine whether to use FBAR or Form 8938 for your foreign financial assets.
| Type of Account | Form 8938 | FBAR |
| Financial (deposit and custodial) accounts held at foreign financial institutions | Yes | Yes |
| Financial account held at a foreign branch of a U.S. financial institution | No | Yes |
| Financial account held at a U.S. branch of a foreign financial institution | No | No |
| Foreign financial account for which you have signature authority | No, unless you otherwise have an interest in the account as described above | Yes, subject to exceptions |
| Foreign stock or securities held in a financial account at a foreign financial institution | The account itself is subject to reporting, but the contents of the account do not have to be separately reported | The account itself is subject to reporting, but the contents of the account do not have to be separately reported |
| Foreign stock or securities not held in a financial account | Yes | No |
| Foreign partnership interests | Yes | No |
| Indirect interests in foreign financial assets through an entity | No | Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. |
| Foreign mutual funds | Yes | Yes |
| Domestic mutual fund investing in foreign stocks and securities | No | No |
| Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor | Yes, as to both foreign accounts and foreign non-account investment assets | Yes, as to foreign accounts |
| Foreign-issued life insurance or annuity contract with a cash value | Yes | Yes |
| Foreign hedge funds and foreign private equity funds | Yes | No |
| Foreign real estate held directly | No | No |
| Foreign real estate held through a foreign entity | No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate | No |
| Foreign currency held directly | No | No |
| Precious Metals held directly | No | No |
| Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles | No | No |
| “Social Security”- type program benefits provided by a foreign government | No | No |
Get FBAR Help with Tax Samaritan
We hope this guide has helped clear any confusion you have about FBAR reporting. Filing your FBAR can be straightforward for some, but it can also become complex depending on your financial situation. Whether you’re dealing with simple or intricate foreign accounts, getting professional assistance can make the process smoother and more accurate.
If you have questions or need help filing your FBAR, our experienced team is here to support you. Contact us today to start and ensure you file your FBAR correctly and on time. Let us handle the details so you can focus on what matters most to you.