FBAR stands for Report of Foreign Bank and Financial Accounts. One must report their financial accounts to the Treasury Department. Financial accounts such as bank accounts, brokerage accounts and mutual funds need to be reported. These accounts are reported on FinCEN form i.e. Form 114. FinCEN stands for Financial Crimes Enforcement Network.
Who must file FBAR by using Form 114?
A U.S. person means and includes U.S. citizens, Green Card holders and resident aliens. Also, corporation, partnership, limited liability Company, trust and estate has to file an FBAR.
When FBAR filing requirement arises?
One must file FBAR to report:
1. A financial interest in or signature authority (means to have control over the disposition of money or other property by using signature on documents) or other authority over one or more financial accounts in foreign country i.e. outside U.S.
2. The aggregate value of those foreign financial accounts exceeds $10,000 at any time during the year.
So, even if one foreign financial account has more than $10,000 at any time during the year or if sum of all the foreign accounts that one possess exceeds $10,000 then one has to file FBAR.
When FBAR filing is not required?
One does not need to file Foreign Financial Accounts if:
- All Foreign financial accounts are reported on a consolidated FBAR or
- Own foreign financial accounts jointly with spouse and one has signed FinCEN form 114a which authorizes spouse to report those foreign accounts on one’s behalf.
When to file FBAR?
FBAR is filed annually. It is due on Aril 15th coming after the calendar
Year for the year the FBAR is reported. If one fails to file it then automatic extension to October 15 is allowed. One does not need to request for an FBAR extension.
How to file FBAR/ FBAR Deadline:
FBAR is filed to Treasury Department and not to the IRS. One has to use FinCEN 114 and submit electronically through the BSA e-filing site.
If one wants to paper-file FBAR, then one has to contact FinCEN’s resource center to request for an exemption from e-filing. If the request is accepted then FinCEN will send paper FBAR form. One has to complete the form and send it to the IRS as per instructions given on the form.
What needs to be reported on the FinCEN form?
For every foreign bank and financial account one holds, one has to report the following:
- Name on the account
- Account number
- Name and address of the foreign bank
- Type of account
- Maximum value during the year.
What constitutes financial account?
- Bank accounts such as savings accounts, checking accounts, and time deposits
- Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts
- Commodity futures or options accounts
- Insurance policies
- Mutual funds or similar pooled funds
FBAR Penalties:
Penalties are imposed on the ones who do not comply with the filing requirements of FinCEN 114. The penalties depend upon whether the noncompliance was wilful or non-willful.
Penalties for Willful failure to file FinCEN114/ FBAR
Willful failure means one knew that they were required to file FBAR but purposely did not file.
The standard penalty is $100,000
or
50% of the balance of the account at the time of the violation, whichever is higher, for each year that a required FBAR was not filed.
Penalties for Non-Willful failure to file FinCEN114/ FBAR
Non-Willful failure means a person was unaware or there was no way he/she could have known of the FBAR filing requirement.
The standard penalty is $10,000 for each year FBAR was not filed.
However, as per recent court rulings as of 2022, the IRS is taking a per account approach rather than per year approach. This means $10,000 penalty would be charged per account not reported.
Above is the brief summary for FBAR filing and its related information. We have tried to put it in layman language. If you still have any questions then please feel free to contact us on info@konnectconsultancy.com and we will be pleased to help you!
