United States: The Five "W’s" Of The Report Of Foreign Bank And Financial Accounts (FBAR)

The U.S. Bank Secrecy Act (BSA), passed by Congress in 1970, gave the Department of Treasury the authority to collect information from U.S. persons having a financial interest in or signature authority over financial accounts maintained with financial institutions located outside of the U.S. This provision of the BSA requires that a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) be filed if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. FinCEN Form 114 supersedes Treasury Form TD F 90-22.1. In April, 2003, the Financial Crimes and Enforcement Network (FinCEN) delegated enforcement authority regarding the FBAR to the Internal Revenue Service (IRS). Although the form and the administration and enforcement of its filing have been modified over the years, the FBAR filing requirements themselves are by no means new, having been first put in place back in 1972.

FBAR vs. FATCA

The FBAR is not part of the Foreign Account Tax Compliance Act (FATCA), which became law in March 2010. One of the many implications of FATCA is that it imposes a requirement on U.S. individual taxpayers to report information about certain foreign financial accounts and offshore assets on Form 8938, and attach it to their income tax return, if the total asset value exceeds a specified reporting threshold. Form 8938 reporting is in addition to FBAR reporting, and the Form 8938 filing requirement does not replace or otherwise affect a taxpayer's obligation to file the FBAR. As such, there can be duplication of reporting of affected accounts under both the FBAR and the FATCA reporting rules. The implications of FATCA are beyond the scope of this article; however, our February 2014 Tax Flash provides a more comprehensive look at FATCA.

Who must file an FBAR?

A U.S. person who has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds USD $10,000 at any time during the calendar year.

A "U.S. person" means:

  • a citizen or resident of the United States;
  • an entity created or organized in the United States; or
  • a trust or estate formed under the laws of the United States.

Financial accounts include bank accounts, securities accounts, insurance or annuity policies with cash value, and shares in a mutual fund or similar pooled fund. Registered accounts, such as Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs) and Tax-Free Savings Accounts (TFSAs) must be reported on the FBAR form.

A financial interest can be direct or indirect. As a result, a U.S. person who owns more than 50% of the total value of shares in a corporation, or more than 50% of the voting power of all shares in a corporation, would have a financial interest in all financial accounts held by that corporation.

What information is reported on an FBAR?

The FBAR must provide:

  • the name in which each account is maintained;
  • the number or other designation of the account;
  • the name and address of the foreign financial institution that maintains the account;
  • the type of account; and
  • the maximum account value of each account during the reporting period.

All amounts reported on an FBAR must be reported in U.S. dollars. In order to report an account denominated in non-U.S dollars, one must determine the maximum account value in the currency of the account and convert that value to U.S. dollars using the exchange rate in effect on the last day of the calendar year.

Where, when and how to file an FBAR?

The FBAR is an annual report and must be filed on or before June 30 of the year following the calendar year being reported. The FBAR must be filed electronically through FinCEN's BSA E-Filing System. There is no extension of time available for filing an FBAR. Extensions of time to file federal tax returns do not extend the time for filing an FBAR.

Penalties

A non-willful failure to file an FBAR when required to do so may result in civil penalties of up to $10,000 per account, per year. When a U.S. person learns that an FBAR should have been filed for a previous year, the filer should file the delinquent report electronically using the BSA E-Filing System website. The IRS generally will not impose a penalty for the failure to file a delinquent FBAR if the income from the foreign financial accounts reported on the FBAR was properly reported on a U.S. income tax return. Where taxpayers have failed to file required U.S. income tax returns, streamlined filing compliance procedures are available, and the delinquent FBARs may be filed as part of these streamlined procedures.

If you have overdue FBAR filings or would like more information on your U.S. filing obligations, contact your Collins Barrow advisor for assistance. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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