Update on FBAR Reporting Requirements

Tax Professionals' Resource
April 23, 2014 — 2,151 views  
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Report of Foreign Bank and Financial Accounts (FBAR) requires all US citizens and legal entities with financial interest and/or signature authority over a offshore/foreign financial account is required to report that account(s) every year to the IRS (Internal Revenue Service), as per the Bank Secrecy Act. A foreign financial account is not limited to just bank accounts, but also includes any brokerage account, mutual funds, and trusts. IRS has ascertained certain thresholds, and if the account crosses it, then it must be reported.

Updates to the existing reporting procedure

Earlier Form TD F 90-22.1 was required for FBAR reporting, but it is now obsolete. Since, 30 June 2013 the FBAR reporting needs to be done electronically using a Financial Crimes Enforcement Network (FinCEN) Form 114. This form is only available online.

This form provides a few added benefits. A filer can explain late filings, and also gets an option to explain the late filing in a text box. If a person of entity only has signature authority, but doesn’t have any financial interest in the foreign account in question, then the filing can be deferred till 30 June, 2015.

A foreign financial account needs to be reported even if it doesn’t generate any taxable income, or is exempt due to international tax laws pertaining to the country the account is in.

Who must file an FBAR?

  • All US citizens with at least one foreign financial account, as specified above
  • All US legal entities, like corporation, partnership, trust and estate
  • If the foreign financial account value crossed the $10,000 mark at any point during the financial year in question

The exceptions

In case any of these hold true for you, then you are exempt from the FBAR reporting.

  • Foreign financial accounts co-owned by spouses
  • If the person/entity in question is in a consolidated FBAR
  • Government-owned (through an entity) foreign financial accounts
  • International financial institution-owned foreign financial accounts
  • Owners and beneficiaries of IRA
  • If you are a participant or benefit from a tax-qualified retirement plan
  • Beneficiaries of trusts (however, it needs to be reported by a US citizen on behalf of the trust)
  • US military banking facility-owned foreign financial accounts

Possible penalties

The FBAR report needs to be filed by June 30 of the year immediately after the calendar year in question. In case of failure to file a FBAR on time, filing an incomplete report, the person or entity is liable to a civil penalty. If it is determined that it a non-willful violation the penalty will not exceed $10,000 per violation. If is a wilful violation, then the penalty will be $100,000 or 50 percent of the value of the account (whichever is greater), per violation.

Read the FinCEN guidelines here.

Tax Professionals' Resource