Who must file an FBAR?

The Who, What, When, How and Why of FBAR Filing

In today's growing, global economy, it is fairly common for U.S. taxpayers to have a financial account (banking, pension, investment, etc.) located outside of the U.S. But you may be surprised to know that just by keeping your money in a foreign account, you might have to file a special form with FinCEN, the U.S. Treasury Department's Financial Crimes and Enforcement Network or else face heavy penalties. This special form is commonly called “FBAR” or FinCEN Form 114, Report of Foreign Bank and Financial Accounts.

If you're looking to be spared from the wrath of the FBAR penalties, make sure to file your FBAR timely. The FBAR must be filed by April 15, 2019 if you had a foreign account or multiple foreign accounts in 2018 that together totaled more than $10,000 at any point during the year. However, the FBAR filing deadline has been aligned with the tax return filing deadline. This means since Expats living abroad have an automatic extension to June 15, 2019 to file their U.S. returns, the FBAR is also automatically extended. Also, if you receive the 6 month extension to October 15, 2019, the FBAR filing deadline will be extended to that date too.

Not sure whether you must file an FBAR for 2018? We're here to help break down your top questions of FBAR filing.

Who must file an FBAR?

Whether you live in the U.S. or abroad, every U.S. person (U.S. citizens, green card holders, resident aliens) is required to file an FBAR if they are an owner, nominee, or can control the distribution of the account's funds. If the combined balance of all your accounts is more than $10,000 at any point during the calendar year, you must file the form.

For example, suppose you are a U.S. citizen living in Brazil and you have two checking accounts and a poupança account at a Brazilian bank that together held $15,000 during 2018. In this case, you must file an FBAR for 2018 even if each account only held $5,000.

Foreign financial accounts include bank accounts, securities accounts, and certain foreign retirement arrangements. Accounts located outside of the 50 states, D.C., the U.S. possessions, and tribal territory are considered "foreign" accounts for FBAR purposes. Certain jointly owned accounts, correspondent or nostro accounts, and accounts held by governmental entities generally are not subject to the FBAR filing requirement.

What else do I need to know?

You will need to complete Schedule B, Part III of your tax return and possibly Form 8938. Form 8938 is part of your tax return, unlike the FBAR which is filed separately.

Generally, U.S. citizens and resident aliens report all worldwide income, including income from foreign trusts and foreign bank and securities accounts, such as interest income. In most cases, these taxpayers need to complete and attach Schedule B (Form 1040) to their tax returns. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and also requires U.S. citizens to report the country in which each account is located.

In addition, some of you may also have to complete and attach Form 8938 to your return. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions of this form for details.

Note that filing the Form 8938 does not replace or otherwise affect your requirement to file FBAR (FinCEN Form 114). A brief comparison of the filing requirements for FBAR and Form 8938 is available on IRS.gov.

When is the FBAR due? Can I submit my FBAR with my regular tax return?

The due date of the FBAR is the same as the due date for your tax return: April 15, 2019. However, if you live abroad, your FBAR filing deadline will match the automatically extended deadline for your tax return, June 15, 2019. Furthermore, if you have the 6-month extension to October 15, 2019, your FBAR deadline is extended to that date as well.

The FBAR is not filed with a federal tax return; rather, it is filed separately and directly with FinCEN. Importantly, if you are required to file an FBAR, you must file the form even if you are not required to file a U.S. return with the IRS.

How do I file FBAR?

Your FBAR must be filed electronically through FinCEN's BSA E-Filing System or by utilizing a preparation service that has the ability to file the form. In very few situations are you able to file a joint FBAR. If you own accounts jointly with your spouse, and either none or only one of you own a separate account, you are able file a single report. Otherwise, each spouse must file their own. Note that if you are filing prior year FBARs or amended FBARs, you must still use FinCEN's website to do so and you must file separate accounts.

Why should I file FBAR?

Under the current FBAR rules, if you are required to file but either you do not file on time or if you do not correctly report your foreign accounts, you can be subject to a penalty of up to $10,000 per violation. This is true even if you did not know you were required to file. If you are aware of your requirement and do not file an accurate FBAR, or if you fail to file it on time, you could get hit with a $100,000 penalty per violation or an even higher penalty, depending on your account balances at the time of the violation.

As you can imagine, with these penalties, FBAR filings have increased for 9 of the last 10 years, starting at about 280,000 FBARs filed in 2005, according to the IRS and FinCEN. For calendar year 2015, more than 1 million FBAR filings were filed.

- Contributing Author: Brittany Benson, The Tax Institute

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