FBAR – Report of Foreign Bank and Financial Accounts
The Report of Foreign Bank and Financial Accounts, also known as the FBAR, is a disclosure form for reporting the highest balance during the year of each and all foreign bank accounts for both individuals and businesses. The accounts include any account such as bank or brokerage for which an individual or business has a financial interest in or signature authority. The filing requirement threshold for this form is $10,000 value of all combined accounts. This means that a US Citizen, resident alien, or US based business only has to file an FBAR every year if the highest combined value of all foreign accounts at any point during the year was at least $10,000. The Form is due every year by June 30 and can be electronically filed by filing the Financial Crimes Enforcement Network (FinCEN) Form 114. Prior to the 2013 tax year, the form used was the Form TD F 90-22.1 but it has since been replaced by the FinCEN 114.
Determining FBAR Filing Requirement and Amounts
To determine the highest balance of each foreign account at any point during the year, the best practice is to go through the monthly bank statements issued by each account. The highest balance is then converted to US dollars, if needed, using the exchange rates reported by the US Treasury Department for the year. The Treasury exchange rates are the only rates allowed per law and they are published online every year.
Penalties
Although there is no tax due with the financial disclosure form, the penalties for not filing can be substantial. The maximum penalty for a non-willful violation is $10,000 and the greater of $100,000 or 50 percent of the balance in the account at the time of the violation for each violation, for willful violations. Therefore, it is advisable that all FBARs be filed on time. Past due FBARs for prior years should also be filed as soon as possible to reduce or eliminate future penalties before being contacted by the IRS.
Streamlined Filing Compliance Procedures
In addition, if the taxpayer believes that they owe tax on prior tax returns due to unreported foreign accounts, they should consider filing all prior tax returns, including amended returns if needed, as soon as possible. This is because the IRS has a program, commonly known as Streamline, which allows taxpayers to file delinquent FBARs for a reduced or total penalty abatement (5 percent penalty of foreign financial assets that would have caused tax for US taxpayers residing in US, and no penalty for US taxpayers residing abroad). However, once contacted by the IRS, taxpayers cannot use the benefits of the voluntary Streamlined Filing Compliance Procedures.
For more information regarding the FBAR disclosure requirements and assistance with filing the Form FinCEN 114, please email us at [email protected].
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