This article was updated on March 12th, 2019.
What is FBAR filing and who needs to report it?
You may have heard of FBAR filing yet still have a vague understanding if it’s something you need to do. FBAR means Foreign Bank Account Report and it refers to FinCEN Form 114, Report of Foreign Bank and Financial Account. Requirements of FBAR filing are quite simple:
- You are a U.S. person for tax purposes hence U.S. citizen, dual citizen or Green Card holder living abroad;
- You have individually or jointly owned a foreign financial account or a signature and other authority over;
- And the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.
How does a U.S. expat report FBAR on FinCEN Form 114?
On FinCEN Form 114, a taxpayer needs to report foreign financial assets according to the certain requirements. They include but not limited to bank, securities, and financial instruments accounts; mutual funds and you, as the account holder, have an equity interest in the fund; brokerage account, trust, and insurance policies or annuity contracts with a cash value etc.
Filing an FBAR is required if the total (aggregate) value of all of your financial assets is over $10,000 on any day in the tax year. It is can be a quite confusing situation for taxpayers who they aren’t the main holder of a financial account. Americans abroad mistakingly think they don’t need to disclose the foreign account on FBAR in this case. Well, you need to know that even the nominee must still file the form if the threshold was met.
Example: A U.S. person abroad has 2 different overseas financial accounts. He has $3,400 in one and $6,600 in another, he must report both accounts on Form 114.
What you do not need to claim on the FBAR: domestic mutual funds that invest in foreign stocks; regulated financial accounts, i.e. TFSA and RESP in Canada or Livret A in France and personal property that you held directly. Americans in Canada, check out this blog post about tax traps for you.
How does an American overseas file an FBAR?
This year’s deadline for FBAR is April 15th, 2019. If you failed to fail an FBAR by that date, don’t panic! FinCEN has granted everyone an automatic extension to October 15th, 2019. Hurry up and sort out your Foreign Bank Account Report before last due date! The FBAR is filed electronically through FinCEN’s BSA E-Filing System and it’s filed separately from a federal tax return.
You are able to file a single FBAR:
- If you have joint accounts together with your spouse,
- And none of you or only one has a separate account.
Otherwise, each spouse must file their own FBAR.
A taxpayer who holds a foreign financial account can still meet the reporting obligation. Even when it doesn’t produce taxable income! It happens by answering questions on a tax return about foreign accounts (Schedule B Form 1040). And additionally you need to file an FBAR too.
Are you a U.S. citizen living in the United Kingdom? Check out this article about tax obligations for Americans in the UK!
Are there any FBAR penalties for failing to report?
Under the current FBAR rules, If you non-willfully fail to report FBAR, there is a penalty of up to $10,000. Wilful violations lead to the penalty up to $100,000, or 50% of account balances. Criminal penalties may also apply. Over the last decade after introducing the FBAR penalties, the filings have skyrocketed from 280,000 FBAR in 2005 to 1 million in 2015.
To catch up on late FBARs, you may use Delinquent FBAR. It applies in situations when you don’t need to use the IRS tax amnesty programs:
- Haven’t filed a required FBAR/FinCEN Form 114;
- Are not under a civil examination or a criminal investigation by the IRS
- The IRS hasn’t contacted you about the delinquent FBARs.
You will need to file late FBAR on FinCEN website and include a statement why you are filing the FBARs late.
What is Form 8938 and do I need to file it?
It’s a separate form, which doesn’t replace nor affect your U.S. expat’s obligation to file FinCEN Form 114. You need to check the requirements and relevant reporting thresholds of each form to determine if you need to file Form 8938, Statement of Specified Foreign Financial Assets.
A U.S. citizen, a GreenCard holder or a dual citizen living abroad have to file Form 8938 if they meet following requirements. If a single individual (or a married person who is filing separately):
- holds assets, with a total value of more than $200,000 on the last day of the tax year
- OR assets exceed $300,000 at any time during the year
If a married person is filing jointly:
- the total value of their assets has to be more than $400,000 on the last day of the tax year
- OR assets exceed more than $600,000 at any time during the year.
You need to file and attach Form 8938 to your annual federal tax return and due on the date of latter, including applicable extensions.
The penalty for Form 8938 is up to $10,000. And then an additional $10,000 for every 30 days after an IRS notice/letter. The potential maximum penalty is $60,000 and criminal penalties may also apply.
What does FATCA have to do with FBAR?
FATCA, or the Foreign Account Tax Compliance Act, is different from FBAR. Form 8938 is a part of FATCA laws and it’s filed with your federal tax return and submitted to the IRS. You file an FBAR with the US Treasury Department, and the threshold is much lower. Remember, it’s $10,000 for FBAR filing vs. min $200,000 needed for Form 8938.
You are most likely not be affected by FATCA unless you have at least $200,000 as an interest in foreign financial assets.
According to the IRS, having an interested in an account or assets means “if any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return”.
If you need help with your FBAR filing, contact us today and we will get back to you within 24 hours.