FBAR Filing: Important Things to Know

FBAR (Foreign Bank Account Report) has to do with FinCen Form 114, Report of Foreign Bank, and Financial Accounts. All US citizens with control and ownership of accounts in another country with a value of more than $10,000 in a calendar year must file FBAR.

Sample accounts that must be disclosed are:

  • Securities, banks, and accounts used as financial statement
  • Individually owned stock certificates, bonds, and loans
  • Online gambling account held in a foreign account

Common Mistakes made with FBAR Filing

  • Some people believe that if they have series of overseas accounts, and there is none over $10,000, such accounts do not have to be reported. However, this is not true as the account needs to be reported to the IRS if the aggregate value is more than $10,000.
  • There are times the beneficiary of the account could be someone else. As a result, they believe that the nominee needs not to report the account on FBAR. However, as long as the dollar threshold is met, the nominee needs to file FBAR.
  • Failure to understand what they need to disclose in an FBAR is another mistake. For instance, one needs to report foreign life insurance with a cash surrender value.

Important Things to Note

All US expats might need to file other forms besides the FinCEN Form 114. This also involves completing Schedule B, Part 3 of the tax return, and Form 8938, which are part of the tax return.

Generally, all US citizens need to report income irrespective of the source. This includes income from a foreign bank, security accounts, foreign trust, etc. In addition, one needs to fill and attach Form 1040 Schedule B with the tax returns—the third part of Schedule B request information about foreign accounts like bank and security accounts. One also needs to disclose the country where such an account is located.

Also, you might need to fill and attach Form 8938 to the tax return.

Who Must File an FBAR?

You do not have to live in the US before filing an FBAR. However, as long as you are a US person (citizen, resident alien, and green card holder), you will file FinCEN Form 114. This is true provided you are the owner, nominee, or in charge of the funds in the account.

As long as the total balance in the entire foreign account is above $10,000 at any point during the year, it is compulsory to file FinCEN form 114.

Sample foreign financial accounts are securities accounts, bank accounts, and some foreign retirement provisions. In addition, all accounts that are not within the territories of 50 US states, tribal regions, and DC are classified as foreign accounts.

Nostro accounts, correspondence, and some accounts controlled by the government are not subjected to FBAR filing.

Penalties for Not Filing an FBAR

There are severe consequences for not filing the FBAR if you meet the filing requirement. Failure to file will cost you judging by the present rules. Offenses when it comes to FBAR filing are:

  • Not filing even though you are required to
  • Late filing
  • Wrong reporting of the entire foreign accounts

There can be a penalty amounting to $10,000 for each violation. Ignorance does not exclude you from the penalty.

Expect severe penalties if you willfully avoided filing. In other words, you knew you were supposed to file, but you doctored your tax return, or you did not file on time, the penalty can be up to $100,000 for each violation. You could be slammed with a higher penalty as it is a factor in your account balance.

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