What is FBAR filing?

U.S. persons who have a financial interest in or signature authority over foreign financial accounts must file Foreign Bank Account Report (FBAR) if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the calendar year. Because foreign financial institutions are not subject to the same reporting requirements as U.S. domestic financial institutions, FBAR plays a crucial role for the U.S. government to identify any financial criminal activities circumvented through the foreign institutions. FBAR is reported on Financial Criminal Enforcement Network (FinCEN) Form 114.

“U.S. persons” include U.S. citizens and resident aliens (including minor children), as well as legal entities such as trusts, estates, and domestic entities. If a minor child cannot file an FBAR for any reason, such as age, the child’s parent or guardian must file it on their behalf. Within the U.S. persons category, a “resident alien” is an individual who is not a citizen or national of the United States, and who meets either the green card test or the substantial presence test.

The green card test is met if a person is a lawful permanent resident of the United States at any time during the calendar year.

The substantial presence test is met if a person was physically present in the United States on at least:

(1) 31 days during the current year, and

(2) 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:

(a) all the days the person was present was present in the current year, and

(b) 1/3 of the days the person was present was present in the first year before the current year, and

(c) 1/6 of the days the person was present in the second year before the current year.

Generally, the phrase “foreign accounts” includes an account at a financial institution located outside of the United States. The foreign account’s productivity of taxable income is irrelevant in determining whether the account is a foreign financial account for FBAR purposes.

A “financial account” includes, but is not limited to, securities, brokerage, savings, demand, checking, deposit, time deposit, commodity futures or options account, an insurance policy with a cash value, an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund.

The FBAR must be filed on or before April 15^th of the year following the calendar year being reported. Even if a filer misses the due date and fails to report by April 15^th, FinCEN grants an automatic extension to October 15^th. The filer needs not request for an extension.

A “U.S. person” who fails to timely file a FBAR may be subject to civil monetary, criminal, or both penalties. The key to determining the severity of the penalties is whether the person willfully failed to file FBAR or not. For non-willful failure to timely file a FBAR, a person may be subject to a civil monetary penalty up to $10,000. For willful failure to timely file a FBAR, a person may be subject to a civil monetary penalty up to the greater of: (1) $100,000, or (2) 50% of the amount in the account at the time of the violation.

If you are unsure of whether or not you need to file an FBAR or how to file an FBAR, you should consult with a qualified tax lawyer who has experience with FBARs.

Report of Foreign Bank and Financial Accounts (FBAR)

Financial Crimes Enforcement Network – BSA Electronic Filing Requirements for Report of foreign Bank and Financial Accounts (FinCEN Form 114)

IRS Publication 5569 – Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide

31 U.S.C. 5321(a)(5)(B)(i), (C)(i)