FBAR Reporting Requirements: Everything You Need to Know for Compliance
If you're confused about FBAR reporting requirements, you are not alone. Many people are unaware of these rules, and in recent years, the IRS has started sending letters and assessing penalties to get taxpayers back into compliance.
Before this compliance push, only around 20% of taxpayers were compliant with FBAR requirements. Now, the penalties are too high to risk non-compliance. Here's an overview of the requirements.
Do I Need to File FBAR?
Whether you live in the United States or any other country, you need to file an FBAR if you're a U.S. tax resident with foreign bank accounts with a value above the reporting threshold. What does this mean? Let's break down these concepts.
A U.S. tax resident includes the following:
- All U.S. citizens, regardless of where they live.
- Resident aliens — This refers to foreign citizens who are residents of the United States. For instance, if you're a citizen of another country but live in the United States and have a green card, you're a resident alien.
- Domestic trusts, domestic estates, and other domestic entities.
If you fall into one of the above categories, you should file an FBAR if you have foreign bank accounts with a total value of over $10,000 at any point during the tax year. For instance, if you have one bank account with $4,000 and another with $7,000, you're over the threshold and need to file.
Types of Foreign Accounts Affected by FBAR
Most of the FBAR reporting requirements apply to any foreign bank accounts you have. This includes the following:
- Foreign stock or securities in an account at a foreign institution.
- Accounts at foreign branches of U.S. banks.
- Foreign mutual funds.
- A foreign financial institution issued life insurance or annuity contracts with cash value.
A few foreign accounts don't trigger an FBAR reporting requirement. You don't have to include the following on your FBAR form:
- U.S. military banking facility accounts.
- Foreign accounts owned by your retirement accounts, such as IRAs.
- Foreign accounts owned by retirement accounts that you're a beneficiary of.
- Foreign accounts that are part of a trust that you're a beneficiary of — in this case, the trust should file the FBAR, not you.
- Correspondent accounts — Also called vostro or nostro accounts, banks typically use these accounts to store money at other financial institutions.
- Accounts owned by government entities or international financial institutions.
If you have a lot of foreign assets and are unsure whether they trigger an FBAR reporting requirement, reach out to a tax professional. They can help ensure that you're in compliance. You can find one using our site by clicking "find a tax pro" at the top of the page.
Account Balances and the Reporting Requirement
Now that you know which types of foreign accounts trigger an FBAR reporting requirement, you may wonder how much money you need. FBAR applies to the cumulative balance in your foreign accounts. You have to file an FBAR if the total balance was over $10,000 at any point in the year.
In many cases, your account balances will be obviously over or under this threshold, and you can easily identify if you have a reporting requirement. But if your account balances are close to the threshold, you'll have to crunch some numbers to see if you need to file.
How to Determine the Value of Foreign Bank Accounts
To determine how much your foreign bank accounts are worth in U.S. dollars, use the Treasury Reporting Rates of Exchange. The U.S. government generates this exchange rate. The Treasury website has exchange rates for nearly every foreign currency, and you can look at the rate for every single day over the last 20 years.
Don't just consider the balance in your accounts on the last day of the year because your account balances are likely to fluctuate during the year. If you have a single foreign bank account, figure out the date it had the highest balance. Then, convert the balance to U.S. dollars based on the exchange rate applicable for the last tax of the year.
If you have multiple accounts, you'll need to add them together. To ensure you were never over the reporting threshold, look at each account's highest balance day and then add in the balances of your other accounts from that same day. You're still supposed to file if your accounts were only over the reporting threshold for a single day.
How to Take Care of FBAR Filing Requirements
If you're required to report your foreign bank accounts, you must file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts). Do not submit this form with your tax return. You must e-file through the BSA E-Filing System.
You can take care of the process entirely online or download a pdf form, fill it out, and upload it. By calling the Financial Crimes Enforcement Network, you can paper file only if you request permission.
You can authorize your accountant to file for you. To have anyone submit one on your behalf, you need to fill out FinCEN 114a (Record of Authorization to Electronically File FBARs). Don't send this form to FinCEN. Keep it for your records.
Information Required on the FBAR Return
When filling out your FBAR return, you need the following details. When filing an FBAR online, you should gather this information before starting.
- Your name, date of birth, and address.
- Social security number (SSN) or taxpayer identification number (TIN).
- Foreign identification details if you don't have a TIN.
- Total number of foreign bank accounts.
- Name and address of the financial institutions.
- Account number.
- The maximum value of your accounts during the calendar year, based on your account balances and the Treasury Exchange Rate.
- The number of owners for jointly held accounts.
- Names, TINs, and addresses of joint account holders.
- Whether you have signature authority or financial interest.
- Account owner details for accounts you only have signatory control over.
- Explain why you have signatory control — for example, your position if your employer owns the account.
If you're going to have an accountant or tax preparer file for you, provide them with these details along with Form 114a. They will let you know if you need more information.
Reporting Requirements for Spouses
Even if you file your tax return as married filing jointly, you still may need to file your FBAR reports separately. If you individually own an account that your spouse does not own, you need to file separate FBAR forms.
If you own all of your foreign accounts together, you can file a single FinCEN 114 as long as you meet the following conditions:
- All of the non-filing spouse's foreign accounts are jointly owned with the filing spouse.
- All of the above accounts are noted on the filing spouse's FBAR.
- The filing spouse files the FBAR on time.
- The non-filing spouse has completed Form 114a (Record of Authorization to File FBARs Electronically)
If you don't file a 114a, you both need to file a separate FBAR, even if all of your accounts are jointly owned.
When Do You Need to File FBAR?
The FBAR due date is April 15th of the year following the year your foreign bank accounts were over the threshold. For instance, if you had over $10,000 in foreign bank accounts in 2021, you should file the FBAR by April 15, 2022. If the 15th is on a holiday or weekend, the due date moves to the next business day.
The good news is that the government gives you an automatic six-month extension on the FBAR. It's probably easiest to take care of FBAR by April 15th, when you deal with most other tax reporting obligations. But if needed, you can take until October 15th to file.
What If You Missed Your FBAR Filing Requirement?
If you didn't realize that you were supposed to file, there are many ways to take care of your delinquent FBAR reporting obligations. As long as you meet all your other filing obligations, you may be able to go online, file late, and not worry about a penalty.
Suppose you forgot to file your income tax return or didn't report some of the earnings from your foreign bank accounts. In that case, you may need to use one of the IRS's special programs, such as the Voluntary Disclosure Program or the Streamlined Reporting Procedures.
A tax professional can help you select the right program and help you get back into FBAR compliance.
The FBAR is not the only reporting requirement you may face if you have foreign assets. The Foreign Account Tax Compliance Act (FACTA) requires you to file Form 8938 (Statement of Specified Foreign Financial Assets) with your tax return if you have more than $50,000 in foreign bank accounts.
Get Help Meeting Your Reporting Requirements
Still wondering if you have to file an FBAR? Want help understanding and meeting your requirements? Then, contact a tax professional today. Using TaxCure, you can search for CPAs, enrolled agents, and tax lawyers in your area who have experience helping clients meet their FBAR requirements.