June 30, just two weeks from today, marks the due date for the Report of Foreign Bank and Financial Accounts – or as they’re more commonly known, FBARs. If you think you’re hearing about FBARs more than you used to, you’re not wrong: taxpayers are filing in record numbers. That may be due to increased scrutiny, as well as a public release of records like the Panama Papers. Whatever the reason, the Internal Revenue Service (IRS) is watching. Here’s what you need to know:
The FBAR requirements (31 CFR 103.24) are part of the Banking Secrecy Act. Under the rules, each “US person” with an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in any foreign country must file an FBAR if the combined value of such accounts at any point in a calendar year exceeds $10,000. A “US person” generally means a citizen or resident of the United States, or a person in and doing business in the United States – it is not limited to individual taxpayers and includes partnerships and corporations.
In other words, if the total of your interests in all of the foreign accounts in which you have an interest reaches $10,000 or more at any point in the calendar year, you may need to file an FBAR. That applies even if you’ve been faithfully reporting the income on your federal income tax return and even if you’ve never, ever repatriated a single dollar to the U.S. It also applies even if the account produces no taxable income.
There are some exceptions to the FBAR reporting requirements, such as:
- Certain foreign financial accounts jointly owned by spouses;
- United States persons included in a consolidated FBAR;
- Correspondent/nostro accounts;
- Foreign financial accounts owned by a governmental entity;
- Foreign financial accounts owned by an international financial institution;
- IRA owners and beneficiaries;
- Participants in and beneficiaries of tax-qualified retirement plans;
- Certain individuals with signature authority over but no financial interest in a foreign financial account;
- Trust beneficiaries; and
- Foreign financial accounts maintained on a United States military banking facility.
There’s no age at which you get a pass on the FBAR: kids have to file, too. When it comes to the FBAR, a child is responsible for filing his or her own FBAR. If he or she cannot file for any reason, then the child’s parent, guardian, or other legally responsible person must file on his or her behalf as “Parent/Guardian filing for child.”
You file your FBAR online through the BSA E-Filing System website – note that this is a different site from the IRS website. The name of the form is a little different these days, too: it’s now called the FinCEN Report 114, which takes the place of the prior form TD F 90-22.1. You can file immediately or take your time with the pdf version but in both cases, you’ll file electronically.
There are a few quirks. For one, the E-Filing System only allows for one digital signature: you can’t put two signatures on the same electronic form. So, if you’re married and both spouses need to report the same account, you’ll need to complete a form 114a and designate which spouse will file the FBAR. Don’t send the form 114a to FinCEN or IRS but do keep it with your records.
And just as before, an attorney, CPA, or an enrolled agent can prepare your FBAR. Your tax professional should be familiar with the instructions that provide for an approved third-party filing of the FBAR.
The FBAR has to be received on or before June 30th. This is different than the regular “mailbox rule” for tax returns that merely requires that a return is postmarked by the deadline. A more important rule? The June 30 filing date is final: there are no extensions. To be clear: an extension of time to file federal tax returns does not extend the time for filing an FBAR.
BUT. And this is important. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changes the FBAR due date to April 15 beginning with the 2016 calendar year, due in 2017. That’s for next year. That doesn’t change your due date for this year: FBAR deadline for the calendar year 2015 reports remains June 30, 2016.
(For more due date changes, check out this post.)
You’ll want to hold onto your FBAR account records (name in which each account is maintained, the number or other designation of the account, the name and address of the foreign financial institution that maintains the account, the type of account, and the maximum account value of each account) for five years. Your records must be legible and available for inspection. This is not a “good idea as a rule of thumb” rule but an actual FBAR requirement. Keeping a copy of the filed FBAR can help to satisfy the recordkeeping requirements.
Failure to comply with the rules can make you a criminal. Seriously. Failure to file an FBAR may, under the law, result in civil penalties, criminal penalties (31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. section 1001) or both. The civil penalty for failure to file can reach $10,000 per violation. The civil penalty for a person who willfully fails to file a complete FBAR can be equal to the greater of $100,000 or 50% of the balance in the account at the time of the violation (31 U.S.C. section 5321(a)(5)). It’s all very draconian but it’s also very real. If you’re not sure whether the FBAR rules apply to you, check with your tax professional.
One more thing. Don’t forget to check the appropriate block on your federal form 1040 at Schedule B, Interest and Ordinary Dividends (downloads as a pdf):
If you run into technical issues while filing your FBAR, you can call the BSA E-Filing Help Desk at 1-866-346-9478 or send an email to BSAEFilingHelp@fincen.gov. The Help Desk is available Monday through Friday from 8 a.m. to 6 p.m. EST and is closed on federal holidays.
If you have regulatory questions (meaning questions about how to complete the FBAR properly which are not explained in the instructions), you can call the Regulatory Hotline at 1-800-949-2732 (if calling from outside the United States contact 703-905-3975).