Report of Foreign Bank and Financial Accounts, FBAR (FinCEN Report 114, f.k.a. Form TD F 90-22.1), is a form that needs to be filed to Financial Crimes Enforcement Network (FinCEN), one of the U.S. Department of Treasury’s bureaus, in accordance with Bank Secrecy Act (BSA). The IRS in Detroit collected FBAR data on behalf of FinCEN until tax year 2012, but the IRS and FinCEN are separate organizations.
Effective July 1, 2013, it has been mandated that FBARs be e-filed through FinCEN’s online filing system, including amendment of FBARs filed in prior years. Thus, no paper filing is acceptable any longer.
FBAR is a form to disclose banks and financial accounts located outside of the U.S. FBAR is not a part of an income tax return, so it needs to be handled separately. Tax returns are filed directly to the IRS, whereas FBAR should be filed to FinCEN before April 15 (to be precise, it needs to be acknowledged by FinCEN by April 15). If not filed by April 15 for any reason, automatic 6-month extension is granted without extension request.
What are “Foreign Accounts”?
The term “Foreign Accounts” include banks and accounts physically located outside of the U.S. but does not include foreign banks physically located within the U.S. Additionally, the U.S. military banking facilities, including ones located on U.S. base in foreign countries, are not treated as “Foreign Accounts.”
FBAR Filing Threshold
Any U.S. Person whose aggregate maximum balance, at any time during the calendar year, exceeds $10,000 is required to file an FBAR. For example, if a person has 3 foreign accounts: $5,000 in bank A: $5,000 in bank B: and $5,000 in bank C, she/he needs to disclose ALL three accounts, because the aggregate balance of those 3 foreign accounts exceeds $10,000.
Who needs to file FBAR? What is a “U.S. Person?”
The term “U.S. Person” refers to U.S. citizens, U.S. Greencard holders, U.S resident aliens, or non-U.S. resident aliens who elect to be treated as U.S. residents per IRC 6013(G) or (H) or IRC.7701(b)(4). “U.S. Person” also includes individuals who are U.S. residents per Substantial Presence Test under U.S. domestic law but are instead treated as non-U.S. residents per “Tie-Breaker” rule under U.S. income tax treaty. Furthermore, legal entities such as corporations, partnerships, trusts, and estates are all included in the meaning of “U.S. Person” under U.S. tax law.
On the other hand, “U.S. Person” does not include, if certain conditions are met, exempt individuals, such as F-1/J-1 holders who file Form 8843. Also excluded, if certain conditions are met, are individuals who elect to be treated as non-U.S. residents by filing Form 8840 per “Closer Connection” rule.
FBAR needs to be filed by each account owner; that is, even if the tax return is filed on a married-filing-joint basis, it is required that FBAR be filed by each spouse, unless all the foreign accounts are jointly owned. Furthermore, if a dependent has legal title over foreign accounts that meet the above threshold, then she/he needs to file her/his own FBAR.
If a “U.S. Person” does not have direct or indirect ownership but has a signature authority over a foreign account, then the “U.S. Person” is required to disclose such account. For example, if a CFO of corporation A has signature authority over a foreign bank Z’s account owned by corporation A, then the CFO needs to disclose the bank Z’s account together with her/his personal accounts. Corporation A is also required to disclose the bank Z’s account as an owner, i.e., the bank Z’s account should be separately disclosed by both the CFO and corporation A.
What are Reportable Accounts for FBAR and What are Not?
The following are subject to disclosure on FBAR:
- Bank accounts, including savings, checking, demand, CDs, and time deposits
- Stocks and securities accounts, including any investments, brokerages, and mutual fund accounts as well as similar pooled funds
- Any other investment accounts, including commodity futures and option accounts
- Defined Benefit Plans
- Defined Contribution Plans
- Any foreign accounts maintained by U.S. Person’s employer, including but not limited to, company savings accounts, severance pays, stock share plans, ESPP, etc.
- Pensions and Annuities
- Insurance plans with cash surrender value, such as whole life insurance plans
- Indirect interests such as sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in foreign financial assets through an entity (*)
- Financial accounts held at foreign branches of a U.S. financial institution (*)
- Foreign accounts and foreign non-account investment assets held by a foreign or domestic grantor trust for which you are the grantor
The following are NOT subject to disclosure:
- Foreign Social Security
- Foreign stocks or securities not held in financial accounts (*)
- Foreign Partnership Interests (*)
- Domestic mutual funds investing in foreign stocks and securities
- Foreign real estates held directly
- Foreign real estates held through a foreign entity
- Foreign currencies held directly
- Precious metals held directly
- Personal properties held directly, such as arts, antiques, jewelries, cars and other collectibles
(*) FBAR disclosure requirements are different from that for Form 8938, which is described later. Underlined items are the differences in disclosures between FBAR and Form 8938.
If FBAR is not properly filed, the taxpayer may be subject to a civil penalty up to $10,000. If the violation is deemed willful, civil penalties may be imposed in the amount of $100,000 or 50 percent of the undisclosed balance, whichever is greater. The taxpayer may be subject to criminal penalties as well. Statute of limitation is 6 years.