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Comprehensive Review of FBAR Filing Requirements
If you hold foreign bank accounts, you may be required to file an FBAR to avoid penalties from the IRS. The FBAR (form 114) is a form that individuals or businesses with certain foreign financial accounts must file with the Financial Crimes Enforcement Network (FINCEN). This article provides general information related to the FBAR. Contact the McGuire Law Firm in Columbus, Ohio to learn more about our services for taxpayers and for help filing documents related to foreign accounts.
What is the FBAR?
The FBAR, also referred to as Form 114 is a form to be filed annually with the Financial Crimes Enforcement Network. United States persons, which includes trusts, estates, limited liability companies, corporations and residents are included within the definition of US Persons and may be required to file the FBAR depending upon their holding of certain foreign assets, asset balances and values.
What is the Dollar or Value Threshold for an FBAR Filing Requirement?
If the total or aggregate value of all foreign bank accounts or financial accounts that a US Person has signature authority or a financial interest in exceeds $10,000 (USD) at any point over the calendar year, they likely have an FBAR filing requirement. This being said there are two important points to make. One, the requirement is based off of ANY time during the year. Thus and for example, say you sell a vacation home or inherit a piece of real estate in a foreign country and sell the real estate and for one reason or another the sale proceeds go into a foreign bank account. Even though the real estate itself may not need to be reported on an FBAR and perhaps the proceeds were only in a foreign bank account for a day or two, you still likely have an FBAR filing requirement even though the funds were in the account for a short period of time and even if the monies were not held in the applicable foreign bank account at the end of the year. Two, the threshold is for ALL foreign bank accounts or assets subject to the FBAR filing. Thus, if you had a foreign bank account with $3,000 in it, another foreign bank account with $5,000 in it and a foreign asset subject to the FBAR filing requirement valued at $2,500, these assets need to be reported on the FBAR even though none of them ever exceeded the $10,000 threshold at any point in time during the calendar year. In short, remember that the requirement is based off the balances or values at any point during the calendar year and based upon all of your foreign assets (any time and all!).
When is the FBAR Due?
The FBAR is due on April 15th of the following year. Please note, you are allowed an automatic extension until October 15th of the year, which is the extension deadline for 1040 individual income tax returns.
How is the FBAR Filed?
Many people have the common misconception that the FBAR is filed with your 1040 individual income tax return but it is now. The FBAR is filed electronically with FINCEN. You can file the FBAR by getting on the FINCEN website and following the instructions. You will receive an identifying number for the filing of your FBAR, email verification and you can save a copy of your FBAR, which is highly recommended.
What Information Do I Report on the FBAR?
On the FBAR you will report your general information such as name, social security number, date of birth, address etc. In terms of the financial information, you will report the highest or maximum value of each account, the type of account or assets and the name and address of the financial institution. This information is provided for each foreign financial account or asset but the reporting is done on one FBAR, as you do not file multiple FBARs to report multiple foreign bank accounts or financial assets.
Are There Penalties for Failing to File the FBAR or Filing the FBAR Late?
Yes, there can be stiff civil and criminal penalties (50% – 75% based upon the account balances subject to the FBAR reporting) for failing to file the FBAR. There are programs available by the IRS to file late FBARs with reduced penalties.
If you have questions related to your reporting of foreign bank accounts and assets, it is highly recommended you speak with a tax attorney. The McGuire Law Firm, servicing the Columbus, OH area, is available to help you with all tax compliance issues. Contact us today.