File an FBAR
Do You Have to File an FBAR Report? – You Better Be Sure
For many years, some taxpayers hid money in foreign banks to avoid paying taxes to the USA. The problem continued to grow, and in 1970, the Treasury Department came up with a way to correct this. As a part of the Bank Secrecy Act, the FBAR was designed to keep taxpayers from hiding money and other assets in foreign banks.
This report form is the Foreign Bank Account Report, (FBAR), and didn’t appear to be enforced very much for many years. Whether it was confusion or maybe misunderstanding, non-compliance with the law was widespread. The past 20 years or so, however, has seen a lot more effort in enforcing this requirement.
The FBAR is filed on form FinCen 114, and its purpose is to advise the US Treasury of assets you own overseas. The report is filed with the Financial Crimes Enforcement Network, a bureau of the US Treasury Department. The assets would include deposit accounts, securities, and if you have signature authority on a foreign account.
The law in connection with the requirement of filing a FBAR also requires you to maintain detailed records on each of the accounts. Non-compliance of this requirement subjects you to severe penalties, and even prison time if it is a willful violation.
How do I know if I have to file an FBAR?
If you have any money, securities, investment accounts, retirement accounts held in a foreign institution, or if you are a signer on any foreign account, and any combination of the accounts reaches $10,000 in value at any time during the year, you are required to file an FBAR. It’s not the beginning or ending account value, any part of one day triggers the filing.
Am I able to file an FBAR myself and what do I need?
Filing an FBAR can be done by yourself as long as you have all of the information needed. The FBAR will ask you for the following:
- Name of the owner of the account, ITIN or SSN, & address
- Account number of each account
- Name & address of the foreign financial institution where the account is held
- Type of account – Whether it’s a bank deposit, securities, or other
- If the account is joint, name of other owner
- Maximum value of each account during the year
In addition to the above, you’re required to report each account balance in US dollars, rounded up. The US Treasury has a conversion rate as of December 31 on its website. If for some reason these rates aren’t available, you’re permitted to use another verifiable exchange rate site.
Keep in mind, when filing an FBAR on the FinCen Form 114, it is not a report where you pay taxes. It is strictly an information return and any interest, dividends, rents, or capital gain or losses must be reported on your personal Form 1040.
There are some exceptions as to the type of accounts required to be reported as follows:
- Omnibus accounts and certain custodial accounts
- Correspondent accounts
- Any account owned by a governmental agency
- Any account owned by a US military banking facility
- Certain accounts owned by an International Financial Institution
Do I have to report any foreign cryptocurrency accounts?
Surprisingly, any foreign account holding virtual currency does not have to be reported. However, this is being reviewed and most certainly will be included in the near future. So, as right now, the value of your crypto wallets is not a reportable account.
Where do I file the annual FBAR?
Filing the FBAR must be done electronically, and it goes to the Financial Crimes Enforcement Network that is administered by the Treasury Department. It is filed using the BSA e-filing system. Some professional tax preparation packages have that feature included in their software, and they can file the report for you.
When does the FBAR have to be filed?
The due date for filing an FBAR is the same as your personal tax return, April 15. If you have to put your tax return on extension by filing Form 4868, it automatically extends the FBAR filing date for 6 month, October 15. You don’t have to file any special or extra form to extend the FBAR.
Is the FBAR filed every year?
The FBAR must be filed if you had total foreign financial assets that in aggregate was $10,000 or more during any time during the year. If the total was below $10,000, then no FBAR filing is required.
If I’m required to file and didn’t, am I in big trouble?
It depends. If you honestly weren’t aware of the FBAR filing requirement, you can file the delinquent returns using the Streamlined Compliance Program. If you reported the income on all of those foreign accounts on your personal tax return, you may be able to escape any penalties.
If the income was not reported, and taxes paid, you’re now in the penalty phase. If non-filing was deemed to be non-willful, penalties could be from $10,000 to $13,000 for each filing year. If it’s determined that your non-filing was a willful act to evade taxes, the penalty jumps to around $129,000 or 50% of your account balance, whichever is higher.
This is why it’s so important to file the FBAR every year you’re required to, and in a timely manner. In addition, make very sure you report any income from those foreign assets on your personal tax return.
The primary reason these penalties are so stiff is that it isn’t an IRS filing. The filing is with the Financial Crimes Enforcement Network who is charged with safeguarding our financial system from illegal use, combatting money laundering, and terrorist financing. These are very serious issues and must be dealt with stiff penalties for non-compliance.
As we said before, if you weren’t aware that filing an FBAR to report foreign assets was required, but you did report all of the income on your personal tax return, you won’t be hit with a penalty.
However, if the income wasn’t reported and no reports filed, you might want to consult with a legal professional who is experienced in this area. If you want to tackle this job yourself, there is some help available at https://www.fincen.gov/. There is also some help available at the IRS site