Few tax filing requirements raise the ire of taxpayers like the FBAR.
The FBAR, or Report of Foreign Bank and Financial Accounts, filing requirements were introduced in 1970 as part of the Bank Records and Foreign Transactions Act, commonly known as the Bank Secrecy Act. It’s actually not a tax law—you’d find those in Title 26 of the federal statutes—and it’s located in Title 31, Money and Finance: Treasury, at 31 CFR 103.24.
It used to be the case that you didn’t hear much about FBARs. But over the years, there’s been a significant increase in interest in taxpayer transactions by the IRS, including information about foreign financial accounts.
Who has to file an FBAR?
You may think you know what a taxpayer with foreign assets looks like. In your imaginings, they may be the super-rich jetting off to the Caribbean—but, in reality, taxpayers with control over foreign assets may be your neighbors. It may be an executive who works in the U.S. on a non-immigrant visa who still has assets in their home country. It may be a parent who opened a bank account for a child studying abroad. It could be the clergyman who worked for a few years in Europe, living frugally while building a little nest egg—or the son who opened a bank account in his mom’s home country to take care of her while she was ill. It may be you.
FBAR rules cast a wide net. Under the rules, each “U.S. person” with a financial interest in, signature authority, or other authority over one or more accounts, such as a bank account, brokerage account, mutual fund, or other financial account in a foreign country, must file an FBAR if the aggregate value of such accounts at any point in a calendar year exceeds $10,000.
In other words, if the total of all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. And it’s worth noting that the $10,000 threshold is not indexed for inflation—it’s the same today as it was in 1970.
The threshold applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income.
Also important? A “U.S. person” is not limited to individual taxpayers. A U.S. person is a citizen or resident of the United States, or any domestic legal entity such as a partnership, corporation, limited liability company, estate, or trust.
If more than one person owns a foreign financial account, then each person must report the entire value of the account on an FBAR.
There is an exception for spouses: spouses don’t need to file separate FBARs if all of the reportable financial accounts of the non-filing spouse are jointly owned with the filing spouse, and the filing spouse reports all accounts held with the non-filing spouse on a timely filed FBAR. If that’s the case, both spouses should complete and sign Form 114a, Record of Authorization to Electronically File FBARs. You don’t have to submit the form with the FBAR, but you must keep it for your records. And here’s the tricky part: the system will not allow both spouses’ signatures on the same electronic form, so only the filing spouse signs in the system.
If both spouses do not qualify for the exception, then each must file separate FBARs, and report the entire value of the jointly owned accounts.
Children are not exempt from filing an FBAR. If a child can’t file their own FBAR for any reason, such as age, their parent or guardian must file it for them. If the child can’t sign their FBAR, a parent or guardian must sign.
How do you file?
The FBAR is not filed with the IRS. It must be filed electronically with the Financial Crimes Enforcement Network (FinCEN), available through the BSA E-Filing System website.
The deadline for filing the FBAR is the same as the federal income tax return, which means you must file this year by April 15, 2022. The FBAR filing deadline follows the federal income tax due date guidance, which notes that when the federal income tax due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day.
If you miss the April deadline, you will receive an automatic extension until October 15, 2022, to file the FBAR—you do not need to request the additional time. This is a change from years past when FBARs were due in June with no opportunity for an extension.
What if you file late?
This is typically an example of “better late than never.” If you haven’t filed in a prior year, but believe that you should have, you should take steps to correct it as soon as possible. There are a host of potential remedies available, from filing immediately through BSA e-file to filing through an IRS program. The IRS claims it will not penalize taxpayers who properly reported a foreign account on a late-filed FBAR if there was reasonable cause for late filing. But, before you rush out to file late, take a pause. Many tax professionals, like me, advise that you seek professional tax advice if you have questions about late or missing FBARs.
Can you amend an FBAR?
Sort of. If you need to make a change, procedurally, you must file a new FBAR with the correct information, clearly marked as “Amended.” Be sure to check the “Amended” box on the form and fill in your BSA ID from your original return (if you don’t have that number handy, enter all zeros in the Prior Report BSA).
Be sure to fill out the new form completely—this isn’t like a Form 1040X where you only note changes on the amendment.
If you don’t file an FBAR when required may be subject to significant civil and criminal penalties. Taxpayers sometimes label these penalties as “draconian"— they’re not wrong, penalties can escalate quickly, and a willful failure to file can result in exorbitant fines and prison time.
Related IRS tax forms
If you have foreign assets, you may also be responsible for filing other forms, including Form 8938, Statement of Specified Foreign Financial Assets. Form 8938 must be filed by U.S. taxpayers holding certain foreign assets. The reporting threshold depends on your filing status and whether you live inside the U.S. For example, married taxpayers living in the U.S. and filing a joint return satisfy the reporting threshold if the total value of specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year. You can find additional thresholds and criteria in the IRS form instructions. Note that unlike the FBAR, which is filed separately from your federal income tax return, Form 8938 must be filed with your Form 1040.
Depending on the nature of your business holdings, you may also need to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. This form is a reporting form for officers, directors, or shareholders in certain foreign corporations and are used to satisfy the reporting requirements of sections 6038 and 6046. You would file Form 5471 with your Form 1040.
Other informational forms may also apply. If you’re not sure whether you need to file additional forms and you inherit or hold foreign assets, check with your tax professional.
This is a weekly column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.
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