For U.S. citizens, residents, and certain entities with financial accounts outside the country, compliance with the Foreign Bank Account Report (FBAR) is a crucial requirement. Failure to file FBAR can lead to severe penalties. This article explores the essentials of FBAR filing, eligibility, deadlines, and common mistakes to avoid.
What is FBAR?
The Report of Foreign Bank and Financial Accounts (FBAR) is a mandatory filing required by the Bank Secrecy Act (BSA). It is used to disclose foreign financial accounts if their aggregate value exceeds $10,000 at any point during the calendar year. The FBAR Filing is done electronically through the Financial Crimes Enforcement Network (FinCEN) Form 114.
Who Needs to File FBAR?
You are required to file FBAR if:
You are a U.S. citizen, resident, or green card holder.
You have a foreign financial account (bank accounts, brokerage accounts, mutual funds, trusts, or other financial instruments).
The aggregate balance of all foreign accounts exceeds $10,000 at any time during the year.
Accounts Covered Under FBAR
FBAR filing is not limited to just bank accounts. Other foreign assets that require reporting include:
Foreign checking and savings accounts.
Foreign brokerage and investment accounts.
Retirement accounts held abroad.
Mutual funds and similar pooled funds in foreign institutions.
Foreign insurance policies with a cash value.
FBAR Filing Deadline and Extensions
The FBAR filing deadline aligns with the federal tax deadline, i.e., April 15. However, an automatic extension is granted until October 15 without requiring a separate extension request.
How to File FBAR?
FBAR must be filed electronically through the BSA E-Filing System. Here’s a step-by-step guide:
Gather Information: Collect details of all foreign accounts, including account numbers, financial institutions’ names, and maximum balances.
Log in to BSA E-Filing: Access the FinCEN website and choose Form 114.
Fill Out the Form: Enter account details, balances, and ownership status.
Submit the Form: Review for accuracy and submit electronically.
Keep a Copy: Retain records for at least five years for compliance purposes.
Penalties for Non-Compliance
Failing to file FBAR or submitting incorrect information can lead to severe consequences:
Non-willful violations: Up to $10,000 per account.
Willful violations: The greater of $100,000 or 50% of the account balance per year.
Criminal penalties: Potential imprisonment for severe violations.
Common FBAR Filing Mistakes to Avoid
Missing the Deadline: Even though there’s an automatic extension, failing to file can lead to penalties.
Incorrect Account Balances: Ensure accurate reporting of foreign account balances.
Overlooking Joint Accounts: Jointly held foreign accounts must be reported.
Misunderstanding the $10,000 Threshold: The threshold is based on the total of all accounts, not individual accounts.
Not Filing for Corporate or Trust-Owned Accounts: FBAR applies to accounts held by businesses, trusts, and other entities controlled by U.S. persons.
How FBAR Differs from FATCA
Many taxpayers confuse FBAR with FATCA (Foreign Account Tax Compliance Act). While both involve foreign financial account reporting, key differences include:
FBAR is filed with FinCEN, while FATCA (Form 8938) is filed with the IRS.
FBAR applies if the total exceeds $10,000, while FATCA has higher thresholds based on filing status.
FBAR includes all foreign accounts, whereas FATCA focuses on specified foreign financial assets.
Conclusion
FBAR filing is a crucial compliance requirement for U.S. taxpayers with foreign accounts. Understanding eligibility, deadlines, and reporting requirements can help avoid penalties and ensure smooth tax filing. If you have multiple foreign accounts exceeding $10,000, ensure you file FinCEN Form 114 on time to stay compliant with U.S. regulations.
For expert assistance with FBAR and other NRI Taxation matters, consult Dinesh Aarjav & Associates, a trusted partner in U.S. and international tax compliance.
