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Is the FBAR Filing Something I Need to Worry About?

WHAT IS FBAR FILING?

You may have heard of FBAR filing, but you don’t know what it is. FBAR stands for “Foreign Bank Account Report”, and refers to FinCen Form 114, Report of Foreign Bank and Financial Accounts. 

The purpose of the FBAR is to combat tax evasion, specifically reporting money and assets in foreign banks. A FBAR is filed with FinCEN, the U.S. Treasury Department's Financial Crimes and Enforcement Network, rather than with the IRS. Failing to file means facing heavy penalties, so it’s always in your best interest to stay up to date.

PERSONS REQUIRED TO FILE A FBAR:

  • US individuals who have ownership or control (for example signature authority) of foreign accounts with an aggregate value of more than $10,000 in the calendar year are required to file the FBAR . This paperwork needs to be completed and filed each year the aggregate account balance of all foreign financial accounts exceeds $10,000 USD.

ACCOUNTS REQUIRED TO BE DISCLOSED:

  • Bank, securities, financial instruments accounts.
  • Accounts held in commingled funds (mutual funds) and the account holder holds an equity interest in the fund.
  • Individually owned bonds, notes, stock certificates, and unsecured loans are not “accounts”.
  • Foreign life insurance or annuities with cash surrender value are “accounts”.
  • “Foreign” Online Gambling Accounts – IRS Says FBAR filing is Required.
  • Pension accounts also need to be included.

WHEN IS THE FBAR FILING DEADLINE?

The FBAR deadline is usually April 15th, the same as US federal income tax return due date. However, all U.S. citizens receive an automatic FBAR filing extension until October 15th, synchronizing the FBAR deadline with the extended expat tax return filing deadline.

MANY MISTAKES ARE MADE WITH FBAR FILING, THE MOST COMMON BEING:

  • Many individuals mistakenly believe that if a person has several overseas accounts and a particular account is not over $10,000 then that account does not have to be reported. This is incorrect. If the highest aggregate value of ALL of the foreign accounts on any day in the tax year is over $10,000, then all accounts must be reported on the FBAR.
  • Another common mistake arises when an account beneficially belongs to another person and that nominee mistakenly presumes he/she does not need to report that account on an FBAR. This is incorrect. The nominee must still file the FBAR if the dollar threshold is met by the nominee.
  • The threshold is the aggregate of the highest balances, rather than the highest aggregate balance.  You need to find the highest balance of each account, and add those highest balances together, translate at the year end rate, then compare to the threshold. 
  • For example, suppose an individual has $5,000 in an account, then transfers that money to another account and closes the first.  At no time did the person have more than $5,000 in total, but for FBAR filing purposes, they have a highest value of $5,000 in the first account, and a highest value of $5,000 in the new account. That total is $10,000 and therefore creates a filing requirement.
  • Other mistakes involve an improper understanding about what must be disclosed on the FBAR. For example, foreign mutual funds or foreign life insurance / foreign annuity with a cash surrender value must be reported.
  • Another common mistake involves filing for an extension. If an individual files an extension for a US income tax return, it will also extend the due date for the FBAR filing.  This is incorrect. The FBAR is completely separate from one’s income tax return and must be filed on its own.
  • Filers must include all accounts with signature authority, such as for a relative, or an employer, or a not-for-profit.

If you would like more information on FBAR filings, please contact us at dykeyaxley@dykeyaxley.com.

References:

https://americansoverseas.org/en/knowledge-centre/explanation-of-the-us-tax-system/what-is-fbar/

https://brighttax.com/blog/fbar-filing-deadline-2021/#:~:text=The%20FBAR%20deadline%20in%202021,expat%20tax%20return%20filing%20deadline.

Dyke Yaxley LLC is proud to celebrate 10 years of providing US/UK tax and business advisory services specializing in international tax planning and compliance to clients on both sides of the Atlantic. With offices on both sides of the Atlantic, located in the US and the UK, the firm is uniquely positioned to understand the opportunities, challenges and rising costs facing companies with international operations, as well as the complexity of planning and preparing taxes for individuals living and working abroad.

For more information, please visit dykeyaxley.com.

© Dyke Yaxley LLC 2021

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