U.S. citizens and residents and certain nonresidents who have a financial interest in or signature or other authority over any “financial accounts” in a foreign country are required to make a separate filing if the aggregate value of these accounts exceeded $10,000 at any time during a calendar year.
The filing requirements apply to any “United States person,” which is defined as those who fit into one of the following categories:
- A citizen of the United States
- Green Card holders
- Foreign persons residing in the U.S. for extended periods of time (i.e. H-1B, L-1, TN and other visa holders) and other individuals who meet the substantial presence test
- Domestic Partnerships
- Domestic Corporations
- Domestic Trusts and Estates
- Individuals that have signing authority over a non-U.S. account including accounts of an employer (if such person can control the disposition of money or other property)
These filing requirements also apply to those with direct or indirect control over a foreign or domestic entity with foreign financial accounts, even if the taxpayer does not have foreign financial accounts of their own.
FBAR Signature Authority – Because persons with a financial interest and persons with signature authority are required to submit filings, a single account can require multiple filings. For example, a corporate-owned foreign account would require filings by the corporation and by the individual corporate officers with signature authority.
It should also be noted that there are no special rules for minors, therefore minors must also file FBARs.
What Foreign Financial Accounts are Included?
Foreign “financial accounts” include a wide variety of items, such as:
- Bank accounts (savings, demand, checking, deposit, or any other account maintained with a financial institution)
- Securities or brokerage accounts
- Mutual funds
- Debit and Prepaid Credit Cards maintained with a financial institution
- Certain types of annuities or pension accounts
- Retirement Plans including Registered Retirement Savings Plan (RRSP) accounts
- Interests in partnerships, trusts, or other pass-through entities that have foreign accounts
- Insurance Policy with cash surrender value
FinCEN Report 114 (formerly Form TD F 90-22.1)
The mechanism for reporting the FBAR information is filing Form 114 (formerly Form TD F 90-22.1), also known as an FBAR. The report is required when the sum of the highest values in all of a taxpayer’s financial accounts exceeds $10,000 at any time during a calendar year.
The FBAR is an annual report and must be received on or before June 30th of the year following the calendar year being reported. Additionally, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System.
It should be noted that when determining if one should file the FBAR, all foreign (non-US) financial accounts must be aggregated using their highest value during the calendar year. A common misconception is that if an account is under $10,000, no filing is required and this may not necessarily be the case. Additionally, filings are required even if the foreign account does not produce income.
While FBAR reporting requirements have been in place since 1970, significant revisions to the form in 2008 and then again in 2013, and associated penalties for non-compliance have garnered the attention of many taxpayers and practitioners over the last few years. This is a direct result of the Internal Revenue Service (IRS) determining that there is a significant amount of non-compliance in this area and therefore have indicated they will be stepping up enforcement of potentially considerable penalties related to non-filing.
Please contact a member of our International Tax team. Freed Maxick, can assist in assessing FBAR filing requirements, assimilating the necessary information and preparing your current and past due FBARs. We have helped many taxpayers navigate through the Offshore Voluntary Disclosure Program (OVDP) and Streamlined Filing Procedures with no penalties.