Having bank accounts, retirement accounts, or other assets in a foreign country could mean that you have to file additional paperwork every tax year. In particular, an FBAR, or the Report of Foreign Bank and Financial Accounts, is required for those who meet certain requirements.
The goal of the FBAR requirement is to prevent tax evasion and ensure that U.S. persons are not routing assets through foreign banks, and the requirement applies to both U.S. persons living in the United States and those living abroad. But unfortunately, complying with the requirements can be confusing.
If you have accounts in foreign institutions, it’s important to work with a tax expert to understand your obligations and the potential consequences of failing to report those accounts. In the meantime, here is an overview of the basics.
Understanding FBAR
The Foreign Bank Accounts and Financial Accounts Report requires U.S. persons, both in the country and abroad, to report foreign accounts meeting certain requirements. Generally, you must file an FBAR if the total value of your foreign accounts was USD 10,000 at any point during the previous tax year.
The FBAR originated with the Bank Secrecy Act, which was passed in 1970. The Bank Secrecy Act set up stringent financial reporting requirements as a way to identify people engaging in money laundering and tax evasion. Untraceable large deposits into bank accounts were one of the main reasons that the Bank Secrecy Act was created.
Who Needs to File an FBAR?
If you are a U.S. person with signature authority or an interest in a foreign financial account that had an aggregate value of more than $10,000 at any point during the tax year, you must file the FBAR for that year.
Let’s unpack that. First, “U.S. persons” is the specific term used by the IRS to refer to citizens, residents, domestic corporations, domestic LLCs, domestic partnerships, certain trusts, and estates other than foreign estates.
Second, aggregate balance refers to the total balance in all of your foreign financial accounts. Even if you don’t have a single account with more than $10,000, you must file an FBAR if the total from all your accounts is over this threshold. Similarly, even if your aggregate balance is below $10,000 at the end of the year, you must file a report if the total was over $10,000 on any day during the tax year.
Filing Requirements and Procedures
Some accounts that require an FBAR filing include stocks held by foreign banks, foreign mutual funds, and accounts at foreign branches of U.S. banks. If your accounts require you to file an FBAR for the calendar year, you will note that on your income tax return, and then you will file the FBAR electronically with the FinCEN BSA e-filing system.
Make sure you have all of the information you need when you sit down to fill out your FBAR. Necessary information includes your name, address, SSN/ITIN, and all of the same information for any joint owners of your foreign accounts. You should also have the name and address of each foreign bank or financial institution where you have an account or signature authority in an account. Be ready to list each type of account you have, the account number, and the maximum balance of the account for the calendar year.
Ensure that the account balances are converted into U.S. dollars. Use the U.S. Treasury foreign exchange rate as of the end of the calendar year for which you are filing.
Key Forms and Documents for FBAR Filing
FinCEN Form 114 is the updated name for the FBAR. FinCEN Form 114 reports all of your foreign account information to the U.S. Treasury. Account holders and those who have signature authority over an account are required to file. Per FinCEN, you must report foreign bank accounts, stocks or securities held at foreign financial institutions, foreign mutual funds, accounts at a foreign branch of an American bank, foreign annuity contracts, and foreign life insurance.
Exceptions and Exemptions
Per the IRS, there are certain financial accounts that do not need to be reported on an FBAR. These accounts include those that are:
- Correspondent or Nostro accounts
- Owned by a government entity
- Owned by an international bank or financial institution
- Maintained on a U.S. military banking facility
- In a domestic IRA that you are an owner or beneficiary of
- In a domestic retirement plan that you are a participant or beneficiary of
- Part of a trust that you are the beneficiary of—as long as a U.S. person is filing an FBAR reporting these accounts
You do not need to file the FBAR if your foreign accounts are already reported on a consolidated FBAR or you and your spouse have only joint foreign accounts, and they file on your behalf.
Reporting Details
If you own any accounts jointly with another person or multiple people, both parties must report the account on their FBAR. They must also indicate how many joint owners there are (or provide an estimate) and identify information for other principal joint owners.
One question that often comes up is whether you must file if an account has multiple signatories. Even if you cannot withdraw funds on your own, if you have any element of control over an account in a financial institution, you likely still have to report it on your FBAR. Even if a transaction requires multiple signatories to sign off, you are still considered to have some control over the account.
Rules for Married Couples Filing Jointly
One important note: generally, married individuals cannot submit joint FBARs. You can only file a single report if you have joint accounts and no separate accounts. If either of you has a single account, you each must file your own FBAR.
Due Dates for FBAR
The due date is April 15, but there is an automatic extension to October 15 if you do not meet that initial deadline. Those affected by a natural disaster can request further extensions, and certain employees or officers with no financial interest in their accounts may request additional extensions.
What About Form 8938?
If you file an FBAR, you may also need to file IRS Form 8938. Form 8938 has higher reporting thresholds than the FBAR, but it also includes a wider range of foreign assets, including interests in foreign partnerships, interests in foreign estates, and foreign interest annuities with cash surrender value.
With Form 8938, the aggregate value of the specified foreign financial assets must be more than $50,000 at the end of the year or more than $75,000 at any point in the year before you are required to submit this form as a single taxpayer. Married taxpayers filing jointly living in the U.S. must have more than $100,000 at the end of the year or more than $150,000 at any point in the year in foreign financial assets to file. Single taxpayers living abroad must file if they have more than $200,000 in foreign assets at the end of the year or more than $300,000 at any point in the year. Married filing jointly taxpayers living abroad must file if their aggregate value of specified foreign financial assets is $400,000 at the end of the year or more than $600,000 at any point in the year.
Additionally, you do not have to file this form if you are not required to file a tax return for the year in question. If you must file Form 8938, you don’t have to report accounts maintained by a U.S. payer, the foreign branch of an American bank, or the U.S. branch of a foreign bank.
FBAR Audits
With any IRS tax return, there is always the possibility of an audit. Because of this, individuals who file an FBAR are expected to maintain documentation proving the accuracy of their FBAR filings. Keep the following information for each foreign account for a minimum of seven years to be prepared in case of a FinCEN audit:
- The name listed on the account
- The account number
- Name and address of the bank or financial institution
- The type of account
- Maximum value of the account during the calendar year
FBAR Penalties
There are financial penalties associated with failing to file FBAR reports. Even filing late could lead to financial penalties. The agency that oversees non-compliant U.S. persons and enforces penalties is the IRS.
The penalties one faces depend on whether the IRS believes that their failure to file was willful or non-willful. In February of 2023, the Supreme Court ruled that non-willful penalties should be based on each report, not each account. Prior to this, the IRS could fine U.S. persons for each unreported account. Willful penalties can still be assessed per account per year.
Most FBAR violations are non-willful, which means that the person in question did not know or could not have been expected to know that they had to file an FBAR. The maximum penalty for a non-willful violation is $10,000, indexed to inflation. As of 2024, the penalty is over $16,000.
Willful violations occur when an individual knows or should have reasonably known that they were required to file an FBAR. The maximum penalty in this situation is 50% of the maximum account balance during the filing year or $100,000 per account, whichever is higher. Again, the $100,000 is indexed to inflation, so as of 2024, the actual penalty is much higher than this base amount—it’s now over $160,000.
In some situations, FBAR violations may even result in criminal charges. This generally only happens when the individual has also engaged in money laundering or other financial crimes that the FBAR is specifically intended to prevent.
Compliance Tips and Best Practices
Staying on top of your FBAR filing requirements is fairly simple once you have a good system in place. First, you should have a running list of all of your foreign financial accounts. At the end of each year, make a note of the highest balance the accounts had throughout the year.
If the total sum of these numbers is $10,000 or more, you must file an FBAR. If possible, file by April 15; however, since there is an automatic extension, it is acceptable to wait until October 15 if necessary. After filing your FBAR, keep a digital and physical copy of it for at least six years so you are compliant with recordkeeping requirements.
When you are handling foreign bank accounts and assets or otherwise navigating complex financial reporting needs, it’s also recommended that you work with a tax resolution attorney who can help you stay compliant and avoid unnecessary fines and penalties.
How to Catch Up on Unfiled FBARs
It’s not uncommon for someone to realize that they should have been filing FBARs for several years, which means they’re out of compliance from the very beginning. Per the IRS, those who should have filed an FBAR and did not may be able to simply file them late.
This is only an option for those who are not under a civil examination or criminal investigation by the IRS. You must also not have been contacted by the IRS about your delinquent FBAR filings. To get caught up, check out our full guide on catching up on unfiled FBARs.
Legal Considerations and Challenges
Failing to file an FBAR when you are required to do so has a range of legal implications. Those found to be non-compliant could be forced to pay tens of thousands of dollars in civil penalties. The consequences may be even more severe if the IRS finds that the non-compliance rises to a criminal level. This is generally reserved for those who are intentionally evading filing requirements or avoiding filing due to fraud, money laundering, or other illegal activities.
Being delinquent on your FBARs could also lead to audits and other investigations. The IRS has ramped up its focus on foreign bank accounts and assets, which means that those who have skated under the radar for years may be running out of time.
A number of court cases have either changed FBAR requirements or highlighted the importance of timely filing. For example, the Supreme Court case Bittner v. U.S. affected limits on non-willful penalties. While the IRS sought penalties for every undisclosed account, the Supreme Court sided with the taxpayer and determined that penalties should be on a per-report basis, not a per-account basis.
Another important case is U.S. v. Xiao, who got caught up in a case alleging wire fraud, making false statements, and failure to disclose foreign bank accounts. While some of the more serious charges were dropped, the court did not grant Xiao’s request to drop the failure to report a foreign bank account conviction. In a 2023 case against Paul Manafort, the IRS sought penalties for undisclosed foreign accounts. He ultimately agreed to pay over $3 million in penalties.
Resources and Assistance
Much of the information that taxpayers need can be found on the IRS website or the BSA E-Filing System. The IRS provides in-depth information on filing requirements and the potential penalties you may face for failing to file. The BSA E-Filing system walks you through signing up for e-filing and providing the necessary information.
However, if you want more clarity on the issue, you may also consider consulting a tax professional. If you have a simple, straightforward FBAR with accounts that obviously need to be reported, you may be able to handle the form yourself. But if you have accounts that you aren’t sure need to be included or have complicating factors, working with a tax professional can help you avoid penalties or fines.
FBAR filing requirements may seem overwhelming, especially if you’ve never filed before. With the right tax team, you can stay compliant with FBAR requirements and all other requirements set by the IRS. To get help now, schedule a consultation with our team right away.
FBAR FAQ
What distinguishes FBAR filing from FATCA reporting requirements?
Both FBAR and FATCA involve reporting foreign assets and accounts, but they are not the same. Depending on your circumstances, you may need to fill out both forms. The threshold for FBAR reporting is much lower at just $10,000, compared to $50,000 for single filers under FATCA. Additionally, you must have an interest in the account or asset to file FATCA. FBAR is not technically a tax form, while Form 8938 is a tax form filed with your tax return.
How do currency fluctuations affect FBAR reporting thresholds?
The year-end spot rate is what’s used for FBAR reporting. This can cause issues for filers. If the foreign currency increases in strength between the time of deposit and the end of the year, it may change a filer’s tax obligations. It may even mean the difference between filing or not filing an FBAR if they are close to the $10,000 limit.
Are retirement accounts in foreign countries reportable on FBAR?
Yes, foreign retirement accounts are FBAR reportable. However, foreign accounts held in qualified domestic IRAs are not FBAR reportable.
What should I do if I discover an unreported account after the deadline?
If you find an unreported account but you have already submitted your FBAR for the year, you can amend your FBAR. The form has a box where you can indicate the reason for the amendment.
How does the IRS determine willful vs. non-willful compliance?
The IRS indicates that it makes its decisions based on the “totality of the circumstances.” Basically, this means that the IRS considers all available information when determining whether an error was willful or non-willful. They may look at whether or not the individual likely should have known about FBAR filing requirements.
For example, an individual who holds a single large account may not know about filing requirements. However, someone working in international business would be expected to know about these requirements due to their industry and work experience.
Can the statute of limitations expire for FBAR penalties?
Yes. The statute of limitations for FBAR cases is just six years from the due date of the FBAR.
What are the consequences of jointly filing an FBAR with a non-U.S. spouse?
As long as one of the account holders is a U.S. person, an account must be reported on the FBAR. Even if only some of the money in the shared accounts belongs to the U.S. person, the entire balance must be reported, regardless of whether or not the spouse has any obligation to share that information. Jointly-held accounts and assets may also affect the U.S. spouse’s tax obligations.
Does FinCEN grant relief from FBAR penalties in certain circumstances?
Penalties may be removed if the person owing the penalties can prove that they have reasonable cause for being late filing their FBAR. Possible reasons for delinquency include unavailability of business records, economic hardship, or the individual’s agent failing to file on time. If you are attempting to secure relief from FBAR penalties, talking to a tax relief attorney should be your first step.
To get help with FBAR or other foreign tax issues, contact us at Wiggam Law today. Our experienced IRS tax attorneys can help you get back into good standing with the IRS and help ensure you remain compliant with your tax obligations. Call us at (404) 233-9800 to schedule a consultation, or complete our online consultation form today.