What is Foreign Bank Account Report (FBAR)?
In the U.S., as adults, we all know that we need to file annual taxes to the I.R.S. Filing taxes is part of being a responsible U.S. citizen. Whether you live physically in the U.S. or abroad, you still have to file your taxes. There is just no way around it.
U.S. Tax Payers Living Abroad
If you are living abroad, then you also need to make sure that you are knowledgeable of the Foreign Bank Account Report. This is also known as FBAR. This is sometimes missed by those living abroad while filing their U.S. taxes. And yes, this can become a very big issue for you if don’t file FBAR. In fact if you do not file FBAR, this can get you on the wrong side of the IRS. So to make sure you stay in their good graces and stay compliant, we have put together a list of things that you should keep top of mind when it comes to FBAR reporting.
What Exactly is Foreign Bank Account Report (FBAR)?
So, the Foreign Bank Account Report was put together by the U.S. to help identify people that are hiding their revenue in foreign bank accounts. Now, FBAR has been around for a while, but it really has not been imposed very strictly by the Internal Revenue Service in times past. But, that has all changed in recent years.
Currently, the IRS is now making it mandatory for those with foreign bank accounts to reveal these accounts if the account thresholds pass a certain point.
Your first impression of FBAR might be, you are getting taxed based on your foreign bank account balance(s), but that’s not quite true. You are not taxed on the balance(s) of your account(s). With FBAR, it’s just a reporting necessity enforced by the IRS, so they know that there is money held in overseas account(s).
Who Needs to File FBAR?
Any person that is a US tax resident that surpasses a bank account balance of $10,000 or more during the tax year (at any time) will be required to file FBAR. Some people think they can work around this by spreading the money over multiple accounts, but this DOES NOT work! Why is that? The IRS adds up the sums of all your foreign accounts and counts that against your $10,000 limit. So spreading the deposits into multiple accounts won’t help you to avoid FBAR.
One of the more interesting points of FBAR is it also impacts those who have what is known as signing authority on a foreign bank account. What is signature or signing authority? You are considered to have this authority if you have the ability to deposit, withdraw to transfer funds or assets in an overseas account via direct communication with the bank or institution which holds the funds or assets.
So just remember, the overseas bank account does not necessarily have to be yours, for you to be required by the IRS to file FBAR.
What Needs to be Included in FBAR?
For most people, you just need to report your overseas bank account balance(s). This includes information like:
1. Maximum value during the year
2. Account number(s)
3. Type of account(s)
4. Name(s) on the account(s)
5. Name and address of the foreign bank(s)
However, there are other things you might need to report as well. These items include:
1. Foreign mutual funds
2. Foreign issued annuities or life insurance policies
3. Foreign securities or stocks held in an account at an overseas bank or institution
4. Financial account(s) located at a foreign branch of a U.S. bank
How to File FBAR?
The process for filing FBAR is not the same as filing your tax return to the IRS. FBAR needs to be filed electronically through the BSA E-Filing System through the Financial Crimes Enforcement Network.
If you cannot do it electronically. and you want to paper-file FBAR, then you must call the FinCen Regulatory Helpline and request an exemption from filing electronically.
Why not Skip Filing FBAR?
Well, because the penalties for FBAR are quite heavy. For example, you can be fined $10,000 per violation for starters. These fines can go upwards of $100,000 or 50% of your account balance (whichever is greater). So as you can see, this is not something you want to skip filing.
What if I Missed Filing?
For starters, don’t panic. There are IRS programs in place to help get you on the right track. But it’s important to get started ASAP while you are still in good standing with the IRS. It’s best that you take the first step in rectifying your tax issue(s) rather than the IRS taking the first step.
Do You have FBAR Related Questions?
If you have any questions concerning Foreign Bank Account Reporting (FBAR) be sure to give us a call. We would be glad help answer any tax questions you might have.