FBAR When To File: Everything You Need to Know About Foreign Bank Account Report

The Foreign Bank Account Report (FBAR) is a crucial form for U.S. citizens and residents who have financial interests in foreign accounts. This guide will address the most frequently asked questions about FBAR, including what it is, who needs to file it, and the consequences of not filing. Additionally, we will discuss how Tam Accounting can assist you in meeting your FBAR obligations smoothly and efficiently.

What is FBAR?

FBAR stands for Foreign Bank Account Report. It is a form that U.S. citizens, residents, and entities must file if they have a financial interest in or signature authority over foreign financial accounts, including banking, pension, investment, and other types of financial accounts, whose aggregate value exceeds $10,000 at any time during the calendar year. The FBAR is filed using FinCEN Form 114, managed by the Financial Crimes Enforcement Network (Fin

Why is FBAR Important?

The purpose of the FBAR is to help the U.S. government identify and prevent tax evasion and money laundering. By reporting foreign financial accounts, the government can ensure that U.S. citizens and residents are not hiding income or assets overseas. FBAR compliance is crucial for maintaining transparency and adhering to U.S. tax laws.

Who Needs to File an FBAR?

Individuals

U.S. citizens and resident aliens with a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of those accounts exceeds $10,000 at any time during the year. This includes:

• Foreign financial accounts held by individuals.

• Foreign bank accounts with balances over $10,000.

• Specified foreign financial assets such as foreign stocks, securities, mutual funds, hedge funds, private equity funds, real estate held through a foreign entity, and foreign-issued life insurance or annuity contracts with a cash value.

• Foreign mutual funds and foreign private equity funds.

Entities

Entities, including corporations, partnerships, and trusts, must also file an FBAR if they have a financial interest in or signature authority over foreign accounts that exceed the $10,000 threshold.

What are the FBAR Filing Requirements?

When to File an FBAR

The FBAR filing deadline is April 15th each year, but an automatic extension is granted until October 15th. It's essential to file the FBAR on time to avoid penalties.

How to File an FBAR

To file an FBAR, you must complete FinCEN Form 114 and submit it electronically through the FinCEN BSA E-Filing System. Reporting foreign bank accounts involves providing detailed information about your foreign financial accounts, including the name of the financial institution, account number, and maximum account balance during the year.

What Happens If You Don't File an FBAR?

Failure to file an FBAR can result in significant penalties. There are both civil and criminal penalties for non-compliance. Civil penalties can be as high as $10,000 per violation, and if the non-compliance is deemed willful, the penalty can be the greater of $100,000 or 50% of the account balance. Criminal penalties can include fines and imprisonment.

Common Penalties for Not Filing an FBAR

• Civil Penalties: Up to $10,000 per violation for non-willful violations. For willful violations, the penalty can be the greater of $100,000 or 50% of the account balance.

• Criminal Penalties: Fines and imprisonment for willful failure to file an FBAR or for tax evasion related to unreported foreign accounts.

Who is Exempt from FBAR Requirements?

Certain individuals and entities are exempt from FBAR filing requirements. These exemptions include:

• Foreign financial institutions that have a federal functional regulator.

• Foreign financial accounts owned by a government entity.

• Foreign financial accounts owned by an international financial institution.

• U.S. entities that are listed on a U.S. securities exchange and have filed a consolidated FBAR for their controlled subsidiaries.

FBAR Filing Instructions

Step-by-Step Guide to Filing an FBAR

1. Gather Information: Collect details about your foreign financial accounts, including the account number, name of the financial institution, and maximum account balance during the year.

2. Complete FinCEN Form 114: Fill out the form with the collected information.

3. Submit the Form: File FinCEN Form 114 electronically through the FinCEN BSA E-Filing System.

What Types of Accounts Need to Be Reported on FBAR?

Financial Accounts

The types of financial accounts that need to be reported on FBAR include:

• Bank accounts: Savings, checking, and deposit accounts held with foreign financial institutions.

• Securities accounts: Accounts holding securities, stocks, and bonds with foreign financial institutions.

• Foreign financial assets: Other foreign financial assets, including mutual funds, private equity funds, and hedge funds.

Other Reportable Accounts

• Foreign bank accounts: Any bank accounts held in foreign financial institutions.

• Foreign mutual funds: Investments in foreign mutual funds.

• Foreign private equity funds: Investments in foreign private equity funds.

• Foreign hedge funds: Investments in foreign hedge funds.

Common Questions About FBAR

Do US Citizens Have to Report Foreign Bank Accounts?

Yes, U.S. citizens must report their foreign bank accounts if the aggregate value exceeds $10,000 at any time during the calendar year.

Can a Non-Resident Have an ITIN?

Yes, non-residents who are required to file a U.S. tax return or have other federal tax filing obligations can apply for an Individual Taxpayer Identification Number (ITIN).

Do I Need to File an FBAR Every Year?

If the aggregate value of your foreign financial accounts exceeds $10,000 at any time during the year, you must file an FBAR annually.

Can I File FBAR Myself?

Yes, individuals can file the FBAR themselves using the FinCEN BSA E-Filing System. However, it is recommended to seek assistance from a tax professional to ensure accuracy and compliance.

What Happens If I Forgot to File FBAR?

If you forgot to file an FBAR, you should file it as soon as possible. The IRS has procedures for delinquent FBAR submissions, and timely filing can help mitigate penalties.

Do I Need to Pay Tax on FBAR?

Filing an FBAR is a reporting requirement and does not directly result in a tax liability. However, income earned in foreign financial accounts must be reported on your federal tax return, which may result in a tax liability.

FBAR and Tax Return: What’s the Connection?

Filing an FBAR is separate from filing a federal tax return, but the two are related. Income from foreign financial accounts must be reported on your federal tax return, and the existence of these accounts must be reported on the FBAR. The IRS uses both filings to ensure compliance with U.S. tax laws.

How Tam Accounting Can Help

Tam Accounting, led by IRS Enrolled Agent Yeşim Deretam, specializes in helping clients navigate the complexities of FBAR and other international tax filing requirements. As a Certified Acceptance Agent (CAA), Tam Accounting is authorized to assist individuals in obtaining ITINs and ensuring compliance with all federal tax obligations.

Why Choose Tam Accounting?

• Expertise: Our team has extensive experience in tax planning and compliance, particularly in dealing with foreign financial accounts.

• Personalized Service: We provide tailored solutions to meet the unique needs of each client.

• Efficiency: We streamline the FBAR filing process, ensuring that all forms are completed accurately and submitted on time.

Conclusion

Understanding and complying with FBAR requirements is essential for U.S. citizens and residents with foreign financial accounts. Failure to file an FBAR can result in severe penalties, but with the right guidance and support, you can meet your obligations smoothly. Tam Accounting is here to help you navigate the FBAR filing process and ensure that you remain compliant with U.S. tax laws. Contact us today for professional assistance and peace of mind in managing your foreign financial accounts.