What is the FBAR and who needs to file?
If you are a US citizen or US Greencard holder and have an account in a foreign bank with over $10,000, then you need to file an FBAR. However, there is more than this to the requirements of the FBAR. Foreign financial accounts are also included, such as foreign pension funds and brokerage accounts, and you do not even need to own the account; you also need to include accounts even if you only have signature authority.
The FBAR itself refers to form 114a, Report of Foreign Bank and Financial Accounts which must be filed every year with the Financial Crimes Enforcement Network, also known as FinCEN. The report can be filed online at their website or on your behalf by a US accountant. The report is a combination of personal details and a list of every foreign financial account that you own either individually or jointly, and every foreign financial account over which you have signature authority.
The history of the FBAR dates back to the 1970s; however, enforcement of the requirement to file has become more strict in recent years. The FBAR is not only used as a tool to prevent US citizens from avoiding taxes by illegally bringing funds overseas, but it is also used as a way of preventing terrorism and other illegal activity through monitoring foreign bank accounts. As FACTA enforcement increases, so too will FBAR submissions be analysed more carefully in upcoming years.
The penalties for failing to file the FBAR or misrepresenting information on the FBAR can be harsh (depending on the nature of the error).
The FBAR penalties for filing an FBAR late are divided into two different categories – non-wilful and wilful. The maximum penalty, which can be imposed on an individual who has been deemed to be a non-wilful violator, is $10,000. However, if the violator is deemed to have acted wilfully, then there is a maximum penalty of $100,000 or 50% of the balance of the account at the time of the violation, whichever is the greater
The FBAR is due on June 30 and currently no extensions are granted. While it is possible to get an extension on your tax return, the FBAR will not allow for an extension in 2016. However, in future years, the due date and the ability for extension will change to allow for extensions. In 2017, the due date of the FBAR is April 15, the same date as the tax return is due, and it will be possible to request a 6-month extension.
What if I am late filing?
Sometimes it can be difficult to file the FBAR on time because banks take too long to send required documents, or the filer did not know if a bank account had enough money to require filing. If this happens, the best course of action is to file as soon as possible and include an explanation as to why the return was filed late. If you have never filed an FBAR, but were required to, then the best course of action is to file past FBARs for all the years that were required (up to six years). While the FBAR penalties can be great, the FinCEN does not always enforce penalties for non-willful violations.
Joshua Katz, CPA is the founder of Universal Tax Professionals, which specializes in helping Americans living abroad with all their tax and accounting needs. Joshua was born in Cleveland, Ohio and is now living in Europe. He worked at several large accounting firms until he realized he could provide clients better service at lower prices. Feel free to send him an email at firstname.lastname@example.org.