The Foreign Bank and Financial Account Report (“FBAR”) is not a tax form and it is not filed with the IRS. Instead, it is an informational report that is submitted with the Treasury Department. The FBAR filing requires you to disclose information regarding your foreign financial accounts including, for instance, a bank account, brokerage account, mutual fund, trust, pension account, or other type of foreign financial account.
The current FBAR form is FinCEN Form 114, which is filed electronically through FinCEN’s BSA E-Filing System.
Who must file the FBAR?
United States persons are required to file the FinCEN Form 114 FBAR Report if:
- the United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
Example – Alan the Expat
Alan, a U.S. citizen, moved abroad in 2015 and opened a checking account at a local bank. During the same year, he opened a savings account at a separate local bank. He first funded the checking account with $5,000 and then funded the savings account with $6,000, the balance of which was reduced to $4,000 by year-end. Although Alan did not have any single account with $10,000 in value and although the aggregate account value of his two accounts did not exceed $10,000 at year-end, Alan would be required to file a 2015 FBAR, because during the 2015 year, the aggregate maximum account value of Alan’s two accounts was more than $10,000 (i.e., $11,000).
What is the due date for the FBAR?
The FBAR filing is due by June 30th of each year, and extensions are not allowed. For tax years 2016 and onwards, the FBAR filing due date will be moved to April 15th, but with a maximum extension for a 6-month period ending on October 15th.
What are the penalties for not filing the FBAR?
In general, a non-willful failure to do an FBAR filing can result in a penalty of $10,000 per account unless there is reasonable cause for failing to file. A willful failure to file could be subject to civil penalties equal to the greater of $100,000 or 50% of the balance in each unreported account.
In this regard, the IRS recently issued interim guidance to examiners for implementing procedures to improve the administration of the FBAR. According to the guidance, the purpose of the FBAR filing penalty provisions is to establish maximum penalty amounts, leaving the IRS with the discretion to determine the appropriate FBAR penalty amount below the maximum threshold based on the facts and circumstances of each particular case.
For cases involving multiple non-willful violations, the memorandum advises IRS examiners that it may be appropriate to apply one penalty for each open year, regardless of the number of unreported foreign financial accounts. In such case, the penalty for each year would be limited to $10,000. For even less egregious cases, the facts and circumstances may indicate that asserting non-willful penalties for each year of delinquency may not be appropriate. In such case, the examiner may assert a single penalty for all years of delinquent FBARs, which is not to exceed $10,000.