FBAR filing: Why you may need to report money in foreign accounts

As an American living abroad, it’s no surprise that you may 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 special reporting requirements, known as an FBAR filing (Foreign Bank and Financial Accounts Reporting).

The FBAR is sometimes called FinCEN Form 114. Rather than filing an FBAR with the IRS, you submit an FBAR with FinCEN, the U.S. Treasury Department's Financial Crimes and Enforcement Network. Failing to complete an FBAR filing could mean facing heavy penalties.

When to submit an FBAR

If you want to avoid FBAR penalties, make sure to file your FBAR timely. While you can submit your FBAR filing at the same time as your taxes on April 15, 2020, or by the expat tax deadline of June 15, 2020, you automatically receive an extension until October 15, 2020, for FBAR filings.

Not sure whether you must file an FBAR for 2019? We're here to help break down your top questions of FBAR filing.

FBAR filing: Why you may need to report money in foreign accounts

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 2019. In this case, you must file an FBAR for 2019 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 correspondent or nostro accounts, and accounts held by governmental entities generally are not subject to the FBAR filing requirement.

What else do you need to know about filing an FBAR?

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, 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).

How to file an FBAR

Your FBAR must be filed electronically through FinCEN's BSA e-filing system or with a preparation service, such as H&R Block Expat Tax Services.

Married taxpayers should take note: In very few situations are you able to submit 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. 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.

When you work with H&R Block Expat Tax Services, your expat tax advisor will guide you in each step of your FBAR filing.

Why should I file FBAR?

In short, the answer here is penalties. Under the current FBAR rules, if you’re 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.

The penalties are much steeper if you knowingly fail to file an FBAR. If you’re aware of your requirement and do not file an accurate FBAR, or if you don’t 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.

Get help with your FBAR filing with the experts at H&R Block

Have questions about the FBAR? Ready to file? No matter how complicated your U.S. tax return is, there's an expat tax expert ready to help.

Get started with H&R Block’s Expat Tax Services today.