The Foreign Bank Account Report is a term you want to know if you are a United States citizen with money in non U.S. accounts. Filing tax returns is a commonly known responsibility known however if you are living abroad than sometimes the FBAR can fly under the radar. This can be bad as failure to filing can bring upon penalties and the attention of the IRS. Although it can start to feel overwhelming if you are in this position, do not worry. We will provide information on everything you need to know about the FBAR below and hopefully it will help you get back in right standing with the IRS.
What is the purpose of FBAR?
The primary purpose of the FBAR is to fight against tax evasion. With this initiative the United States was uncovering people who were knowingly hiding money in off shore accounts by forcing them to disclose the amount to the IRS. The purpose of FBAR is to simply encourage transparency in off shore accounts for U.S. citizens. The FBAR does necessarily mean you will be taxed on the amount you disclose unless you exceed the threshold. Most expats will have to report only their amounts in foreign bank accounts but a number of other things that may be required are:
- Foreign assets and retirement accounts
- Accounts you have access to and control but don’t own
- Foreign mutual funds like life insurance or annuity contract
Who Files an FBAR?
If you live either in the U.S or abroad as an expat and the balance of your foreign accounts meets $10,000 at any point during the tax year then you are required to file an FBAR. Keep in mind that this threshold is met even if you multiple accounts with varying sums that add up to $10,000. For example, if you are a U.S. citizen living in Norway and have two bank accounts, one with $7,000 and the other with $8,000 you are 100% required to file an FBAR because the total of both accounts summed to $15,000
The requirement to file also applies to all U.S. persons not just citizens. This means that citizens, resident aliens, trusts, estates and domestic entities are all required to file an FBAR.
How You File an FBAR?
First, you have to know that filing for an FBAR is different than filing for a tax return. The FBAR is filed and sent directly to the Department of the Treasury instead of the IRS. You then need a FinCEN 114 and can submit it electronically through the BSA e-filing website. You can also use a third-party to prepare it for you but you must file FinCEN 114 to give them the authority to do so.
Are you married and have solely joint accounts? If so, then your spouse only needs to sign the FinCEN 114 form which will allow you to file on their behalf.
If your spouse has other individual accounts that you are not on then they must file their FBAR separately. Note that if you are filing separately then you are required to include both your joint accounts on each of your FBAR forms.
When to File an FBAR?
There are two deadlines that you must keep in mind when filing for an FBAR.
- April 15th – Every year
- October 15th – An automatic extension if you are unable to file by April.
Penalties to Not Filing
The penalty for not filing can be pretty steep. If you were unaware of your obligation to file then you can be fined up to $10,000 per violation.
Further, if you knowingly avoided filing an FBAR then the penalty can be up to $100,000 or 50% of the account at the time of validation—whichever is greater.
How to Avoid Penalties If You Didn’t File but Should Have
The penalties seem daunting and frightening if you were just made aware of your obligation to file but don’t worry. The IRS has a couple programs that can help you get caught up namely, the Streamlined Filing Procedures. This program is available to U.S. citizen that live in the US or in another country that haven’t filed simply due to the lack of knowledge that they had to. If this is you then look no further! If you qualify, then under the program, you have to file the last three years of Federal Tax returns if you haven’t. Additionally, you must also file an FBAR for the last six years.
Making sure you are in right standing with the IRS is extremely important because if the IRS is aware before you are that you have accounts that have not been reported then you will be ineligible for the Streamlined Filing Procedure and subject to massive penalties.
We are committed to give you a peace of mind!
This can all feel overwhelming at times frightening if you are behind on filing FBARS and disclosing information to the IRS but we have experience in helping expats file 100% accurately and completely. Get started by contacting us today!