It is not necessary to file an FBAR unless at some time during the calendar year the balances in all of your foreign accounts exceed $10,000 dollars. “FBAR” is an acronym for “Foreign Bank Account Report” and refers to FinCEN Form 114. It used to be known as TDF 90-22.1, but it’s the same form.
Keep in mind that you only tally your own accounts, and not your spouse’s accounts for purposes of determining the filing threshold. The form is not filed with the Internal Revenue Service, but must be filed electronically with the Financial Crimes Enforcement Network, known as “FinCEN”. It is not possible to file the form by mailing it in. It must be filed online.
The form is due on April 15 of the year following the calendar year in which the foreign accounts exceed $10,000. FinCEN general grants a filing extension until October 15th. To take advantage of this extension there is no requirement that you submit an extension to file your income tax return; the extension is literally automatic.
The penalties for not filing an FBAR can be devastating, so it’s important that you get it right. In some cases, penalties can exceed the greater of $100,000 or 50% of the balances in your foreign accounts.
Some examples may be helpful to understanding when you must file an FBAR:
Example 1Mr. Smith has a $9,000 foreign account; his wife has a foreign account which also has $9,000 in it. Neither Mr. nor Mrs. Smith needs to file an FBAR.
Example 2Mr. Smith has a $9,000 foreign account; his wife has a foreign account which also has $9,000 in it. They live in California which is a community property state. Under California community property law, they each have an interest in their spouse’s accounts. Nevertheless, for purposes of the FBAR filing threshold, neither of them needs to file an FBAR.
Example 3Mr. Smith has a foreign account with $9,000 in it. He is the sole owner of a U.S. corporation, USCO, which has an account in India. The highest balance in that account is $5,000. Mr. Smith meets the FBAR filing threshold and must file an FBAR. The reason is that because Mr. Smith owns more than 50% of the shares of USCO he is deemed to have a “financial interest” in any foreign accounts in the name of USCO. Therefore, he has a financial interest in foreign accounts exceeding $10,000. The answer would be the same even if Mr. Smith was not a signer on the foreign account.
Example 4Mr. Smith has a foreign account with $6,000 in it on January 1st. On February 1st, he transfers $500,000 from his U.S. account to in Hong Kong for the purpose of making a down payment on a flat there. On February 2nd, he wires the funds from the Hong Kong account to the seller. The balance in that account thereafter stays at $6,000 for the rest of the year. Mr. Smith is required to file an FBAR because his balance exceeded $10,000 for one day.