Do you have a bank account in a foreign country? Did you work in a country that provided a pension account? Do you have stock and securities held by institutions in a foreign country? If this sounds familiar, you may be subject to specific filing requirements and disclosures required by law.
What is FBAR?
The Bank Secrecy Act of 1970 opened the door for the US government to know more about the financial accounts outside the United States that individuals had by requiring disclosure of these financial accounts. Enforcement of this disclosure was delegated to the Internal Revenue Service. To maximize compliance with the IRS, the agency put forth form TD F 90-22.1 which was required to be disclosed on a yearly basis. More recently, as of 2013, a new form, FinCEN Report 114 replaces the TD F 90-22.1, and now includes using an on-line filing system for reporting and eliminating mail-in forms.
So who has to file a FinCEN Report 114?
The IRS requires a US person who has a financial interest in or signature authority over a foreign financial account of at least $10,000 in aggregate, to file a report.
A US person is defined as one of the following:
- A United States Citizen (including those under the age of 18)
- United States Residents (including citizens of other countries)
- Businesses (including corporations, partnerships, and limited liability companies)
- Trusts and estates
What is reported on the FinCEN Report 114?
The following information needs to be provided on FinCEN Report 114:
- Number of foreign accounts the filer has
- Maximum value of the account (in USD)
- Type of account (bank, securities, or other)
- Financial Institution name
- Financial Institution account number
- Financial Institution address
- The account owner’s US address
What types of foreign accounts are reported?
The FinCEN Report 114 has a broad definition of foreign financial accounts as well as rules as to when one needs to file. Generally speaking, if you have financial accounts of over $10,000 in a foreign financial institution, or if your aggregate account balance exceeds $10,000, you may have to file. Some of the more common types of accounts that are filed are as follows:
- Bank accounts such as checking and savings
- Stocks and bonds traded on global markets, including mutual funds and ETFs
- Pension balances
- Trusts and estates
Are there exceptions to filing?
Yes. Exceptions include (but are not limited to):
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of US IRAs
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries (but only if a US person reports the account on an FBAR filed on behalf of the trust)
- Foreign financial accounts maintained on a United States military banking facility.
What happens if you don’t file?
Owners of foreign financial accounts of over $10,000 (or accounts in aggregate) who do not file may be subject to various penalties.
What type of penalties may someone be subjected to?
Owners of foreign financial accounts of over $10,000 who did not file may be subject to penalties based on each account violation. If you have multiple accounts of over $10,000 and did not report, you may be subject to multiple penalties. Penalties generally consist of the following:
- A non-willful penalty can be up to $10,000
- A willful violation can see penalties up to $100,000 or 50% of each account balance, whichever is greater. Willful violations may also result in criminal punishment.
When must the FinCEN Report 114 need to be filed?
The deadline for filing is April 15th of each calendar year. There is no longer extension availability for the FinCEN Report 114, and the report must be filed electronically
Who may assist you with filing the report?
The Certified Public Accountants and staff of Expatriate Tax Online can assist you in the filing of the report. Contact us today to make sure you’re not exposing yourself to potential penalties!