The Internal Revenue Service (IRS) wants to know about all assets, even those that are in foreign bank accounts. According to the Bank Secrecy Act, the Treasury Department wants foreign bank account owners to report these accounts by using a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114.
Failing to report an FBAR, when required, could result in civil financial penalties and/or criminal penalties. Therefore, it is imperative to understand FBAR reporting requirements.
When is reporting FBAR required?
FBAR filing is required when the value of a foreign account exceeds $10,000 at any time during the calendar year.
What types of foreign accounts are exempt from filing FBAR?
The following types of accounts are not required to file an FBAR:
- Correspondent/Nostro accounts
- Accounts owned by a governmental entity
- Accounts owned by an international financial institution
- Accounts maintained on a U.S. military banking facility
- Funds held in an Individual Retirement Account (IRA)
- Beneficiaries of a trust, if another person files an FBAR
FBAR reporting may not be required depending on the type of accounts that are owned. For example, if one spouse reports jointly-owned accounts on an FBAR, the non-filing spouse does not need to file an FBAR. However, the non-filing spouse needs to complete and sign a FinCEN Form 114a to authorize their spouse to file on their behalf.
When to file the FBAR
FBAR is an annual filing that is due on April 15th every year. Automatic extensions are given through October 15th if the filing date of April 15th is not met. The extension is automatic and requires no additional paperwork.
It can be confusing to know what exactly is required and by whom. Having assets in multiple countries can be complicated without the proper support. Sound legal counsel that is experienced in FBAR filings is recommended to avoid errors in filing.