FinCEN Form 114, also known as the Report of Foreign Bank & Financial Accounts or FBAR, is an important financial reporting form required of many U.S. persons who have overseas financial accounts. This is separate from financial forms used for tax filing purposes, but the IRS does oversee the filing of the FBAR.
If you have accounts in foreign countries, you may be required to file FinCEN Form 114, whether you live in the United States or abroad.
What is FinCEN Form 114?
The FBAR is a fairly common document required of foreign U.S. persons and U.S. persons living abroad. It’s essentially a list of your foreign financial accounts—with a few exceptions—and their maximum balances throughout the year. This isn’t a requirement for everyone with a foreign account; only those with an aggregate value higher than $10,000 are required to file FinCEN Form 114.
Why is Form 114 Necessary?
FinCEN Form 114 exists to ensure that individuals and entities cannot hide their assets and wealth offshore. The FBAR helps prevent tax evasion, money laundering, and other forms of financial fraud. It has been required since the passage of the Bank Secrecy Act, which was enacted with the goal of eliminating money laundering and similar crimes.
Who Needs to File?
Per the IRS, any U.S. person with an ownership interest or signature authority over foreign financial accounts with an aggregate value higher than $10,000 must file FinCEN Form 114.
U.S. Persons
The term “U.S. person” includes:
- Citizens
- Residents
- Corporations
- Partnerships
- LLCs
- Trusts
- Estates
Filing Thresholds
If the aggregate value of your foreign accounts is higher than $10,000, you must file FinCEN Form 114. This is relatively easy to calculate. First, you take the maximum value of each account during the year and then convert that number into U.S. dollars. If the sum is greater than $10,000 after you add up all of the accounts’ maximum values throughout the calendar year, you are required to file FinCEN Form 114.
Reporting Requirements
While the majority of foreign financial accounts must be included in your annual FinCEN Form 114, there are exclusions. Reviewing these requirements on a regular basis can help you avoid penalties.
Types of Accounts That Must Be Reported
Almost every financial account must be reported in the FBAR, including bank accounts, brokerage accounts, and mutual funds. If you wonder if a specific account must be reported, it’s easier to look at the IRS’ list of accounts that are excluded from this requirement and determine if it fits in any of those categories. Accounts that do not need to be reported include:
- Correspondent/Nostro accounts
- Accounts owned by a government entity
- Accounts owned by international financial institutions
- Accounts maintained at a U.S. military banking facility
- Accounts held in an IRA where you are an owner or beneficiary
- Accounts held in a retirement plan where you are the owner or beneficiary
- Accounts in a trust that you are the beneficiary of if a U.S. person files an FBAR reporting these accounts
Owning vs. Co-Owning vs. Having Signature Authority
If you own an account by yourself, you are the only person on the account who can make withdrawals and close the account. If you co-own an account, both you and the co-owner are listed on the account and can close it without the other individual’s permission. Authorized signers do not own the account but can access the funds. They do not have permission to close accounts. You must report accounts that you own, co-own, or have signature authority on.
How to File FinCEN Form 114
Although many financial forms can be filed on paper or electronically, you are required to file FinCEN Form 114 electronically using FinCEN’s BSA E-Filing System. You can only file on paper if you specifically request an electronic filing exemption from FinCEN and they approve your request.
You begin by filling out your personal information, including your name, what type of filer you are, your TIN, and your address. From there, you move on to listing each of your accounts. For each account, you must list the maximum value of the account during the calendar year for which you are filing, the name on the account, the name of the financial institution, the type of account, and the address of the financial institution.
When you are calculating the maximum value of the account for the year, you must convert the foreign currency into U.S. dollars utilizing the Treasury’s Financial Management Service rate for the last day of the calendar year.
Deadlines and Penalties
FinCEN Form 114 must be filed annually for the preceding calendar year by April 15. If you do not file by April 15, you are granted an automatic extension to October 15. If you do not file or file late, you may be subject to penalties as listed in Title 26 of the United States Code.
Common Mistakes to Avoid
Financial forms can be overwhelming and confusing, so take your time to avoid common errors. These mistakes could result in hefty penalties and significant problems with the IRS:
- Not realizing that the $10,000 threshold is across all of your accounts: Some people believe that they only need to file an FBAR if they have at least $10,000 in one account. This requirement is for the total maximum value of all of your accounts.
- Assuming that the FinCEN Form 114 requirement is based on the year-end balance: The FBAR filing requirement is based on the maximum value of the accounts during the year, not the status of the accounts at the end of the year.
- Failing to report nontraditional financial accounts: Accounts like life insurance, retirement funds, and passbooks must be reported. Only those specifically listed on the excluded list do not have to be reported.
- Not keeping appropriate records: Even after you have filed your FBAR, you must maintain appropriate records in case an inspection is required. Records must be retained for at least five years following April 15, when you file for the previous calendar year. Your records must include the name listed on each account, the account number, the name and address of the account, the type of account, and the maximum account value.
Ensuring Accuracy and Completion in Your Reporting
Those who are required to file an FBAR each year often find it helpful to update their account records each month during the calendar year rather than looking over their accounts only at filing time. By noting each account’s maximum value in each calendar month, filers save themselves substantial time when April 15 comes—they simply need to find the highest of the 12 values when filing.
This may not be feasible for those with a substantial amount of accounts but is sufficient for the average FinCEN Form 114 filer. You may also wish to have a protocol for maintaining the records you are legally required to present if you are chosen for inspection; organizing your account statements is always a good starting point.
Consequences of Non-Compliance
If you file late or not at all, you could be subject to significant penalties. The penalty assessed depends on whether your failure to file is considered willful or non-willful. The base penalty for non-willful violation is $10,000, adjusted each year for inflation; for penalties assessed after January 25, 2024, that amounts to $16,117. The penalty for a willful violation is 50% of the maximum account balance during the year in question or $100,000 adjusted for inflation, whichever is greater. As of January 25, 2024, the adjusted amount is $161,166.
The main question that comes up among filers is, “What is the difference between non-willful and willful non-compliance?” Non-willful errors make up the majority of violations. These occur when a taxpayer does not intentionally fail to file; they may not file because they don’t know about the FBAR requirement or misunderstand filing requirements.
Willful violations, on the other hand, occur when a taxpayer intentionally chooses not to file to hide assets and evade taxes. The IRS determines whether or not a violation is willful or non-willful by examining the totality of the circumstances—that is, they look at the evidence and facts in each case to make their determinations on a case-by-case basis.
It’s important to realize the real-world implications of non-compliance. The Financial Crimes Enforcement Network has access to an incredible amount of information on U.S. persons, as well as reciprocal agreements with over 100 countries. These countries are required to report information on accounts held by U.S. persons to the United States, which allows them to detect those who have failed to comply with FBAR requirements. If the FinCEN has reasonable cause, they can go so far as to order a search warrant and go through suspects’ homes, electronic devices, and correspondence to prove non-compliance.
Case Studies
The nuances of the FinCEN Form 114 can make it difficult to determine whether or not you need to file. Let’s look at one example: Taxpayer A has three overseas bank accounts, two in their own name and one they co-own with a spouse. Because all of their accounts are not co-owned, they must file their own separate FBAR.
Another example: Taxpayer B has two overseas accounts that they keep open for emergencies back home, but they rarely access the accounts. Even though they don’t transfer money into or out of the accounts, the maximum values of $5,500 and $6,500 do require them to file an FBAR each year.
There have been numerous massive fines assessed due to FinCEN Form 114 violations, and these cases can paint a picture of the full spectrum of outcomes. Consider the case of U.S. v. Markus, involving a U.S. citizen with accounts in Egypt and Jordan. He used those accounts to accept bribes and kickbacks. Though he filed an FBAR, he only reported a single account in Jordan. After the authorities got a search warrant and searched his home, they used bank records, statements, and emails to determine that his non-compliance was willful. He was also indicted for money laundering and wire fraud. His penalty was ultimately over $842,000.
Another case, U.S. v. Toth, shows that your non-compliance can still be considered willful even if you do not technically know filing requirements. In this case, the taxpayer opened a Swiss bank account that held millions of dollars. It was frequently used to send funds to her American bank account. She was no longer able to withdraw funds to her American account once the bank entered an agreement with the United States to require a W-9 for American account holders. She hid her foreign bank account on her tax returns and did not file an FBAR. The IRS ultimately determined that her non-compliance was willful because she actively chose not to learn about reporting requirements and took steps to keep her account secret, indicating that she likely knew she was supposed to be paying taxes on those funds.
FAQs
Is FinCEN Form 114 the same as the FATCA reporting requirement?
These requirements are not the same. The forms are similar, but the filing limits for FATCA Form 8938 are substantially higher than FBAR filing requirements. For example, an unmarried individual living in the United States would need to file FATCA only if they have more than $50,000 on the last day of the year or $75,000 at any point during the year in a foreign account.
Can I file FinCEN Form 114 after the deadline?
You may be able to file FinCEN Form 114 after the deadline by utilizing the Voluntary Disclosure Program, Delinquent FBAR Submission Procedures, or Streamlined Filing Compliance Procedures. You can use Form 14653 for Streamlined Foreign Offshore Procedures if you’re out of the country. You may not be able to avoid penalties if the IRS initiates a civil action or investigation against you before you seek amnesty.
How do joint accounts with a non-U.S. person affect FinCEN Form 114 filings?
The U.S. person must still file the FBAR, but the non-U.S. person likely does not have to file.
What records need to be kept after filing FinCEN Form 114?
You must keep records showing each account’s account number, the name on the account, the type of account, the maximum value during the year, and the name and address of the financial institution. These records must be kept for five years from the April 15th deadline following the year you’re filing for. For example—if you file for calendar year 2023 by April 15, 2024, you must keep the 2023 records until April 15, 2029.
Does having an account in a foreign currency affect the reporting on FinCEN Form 114?
No. You simply have to convert the currency into U.S. dollars using the value given by the Treasury’s Financial Management Service on the last day of the calendar year. The reporting threshold is $10,000 in US dollars, so it is important to convert the money into US dollars first to verify whether there is a reporting threshold.
Resources for Assistance
The IRS and FinCEN provide resources for U.S. persons who need further information and guidance on FBAR requirements, including:
If you have any accounts in foreign institutions, looking into FinCEN filing requirements is important to determine if you must fill out an FBAR. Staying on top of these requirements can help you avoid costly penalties and time-consuming investigations by the FinCEN and IRS.
If you worry that you have unintentionally failed to comply with FBAR filing requirements, find out how our team of expert tax professionals can help. Call us at (404) 609-1300 or schedule your case consultation online today.