FBAR (Fincen 114) Rules

FBAR FormDetailed rules, under "Who Must File an FBAR" are herebut we have prescribed the basics for you here as well, below.

Note: If you are in Chicago area please call us to make an appointment. If you are out of Chicago please call us we can still help you with FBAR filing.

BACKGROUND: The FBAR (now known as the FINCEN 114, and formerly as the 90-22.1) is a mandatory, electronically filed form, for all US persons. One can efile their own FBAR here. Paper filed or mailed FBARS to Detroit are NO longer accepted by US Treasury. This is a disclosure form, and NOT an income tax form, so no income taxes or any payment goes along with this form. The form is filed individually, and not jointly. Think of it as an addendum to your tax return, filed by June 30th, except it too is filed electronically. There are several exceptions to being required to file an FBAR for a US person, prescribed in the instructions to the FBAR, but we will describe only one exception here below.

For the most part, the following "US persons" must file an FBAR:

  • US Citizens;
  • US green card holders;
  • US resident aliens (H1B, H4, L1, L2, or any other visa holder except F, J, M Q) who meet the substantial presence test and who filed a regular US 1040 for the prior tax year; and
  • Any US Corporation, or US organized entity (trust, estate), partnership;

FOREIGN ASSETS/ACCOUNTS: Per the Bank Secrecy Act, if the above US persons had ownership or a signatory authority, in the prior calendar year, in any bank, retirement, insurance or investment accounts in a foreign country, and the balance of any of those accounts went over $10,000 in the prior calendar year, then they have a requirement to electronically submit the Report of Foreign Bank and Financial Accounts (FINCEN 114, aka, "FBAR") by June 30th of the following year, for the highest balances of each of those accounts in the prior calendar year. This is true, even if each of foreign bank accounts never exceeded, individually, $10,000 in a calendar year, but rather, as a sum -- meaning, IF EACH ACCOUNT'S maximum calendar year balances, added up with otheraccounts' maximum calendar year balances, in total, is more than $10,000 in a calendar year, there exists an FBAR requirement. These are PER DAY and NOT per month or per year balances.
ONE (of many) EXCEPTIONS: Anyone having correctly filed a 1040NR for the prior year (i.e., if the individual is a student or research professor on an F, J, or M, or Q visa), then that individual does not have an FBAR reporting requirement for that year. If for any tax filing year, one opts to or correctly file as a 1040 resident filer, he or she now has an FBAR reporting requirement for that year, due by June 30th of the following year. Example, a 2013 taxpayer who has two foreign accounts, each with maximum balances of $6,000 in each account for the prior calendar year, then electronically files a 1040 for that calendar (tax) year, and who also is an H1B visa holder, has the requirement to file his FBAR by June 30th of 2014 for those foreign accounts (since each of the $6K balances adds up to being more than $10K). That is the same situation for a US Citizen as it would be for a US Green card holder.

 Regardless of what the balances are of any and all such foreign accounts, the income (interet, capital gains, dividends, etc.) from these foreign accounts MUST STILL be reported on one's US 1040 residential income tax return (unless of course a 1040NR has been filed).

PENALTIES: Even though this is not a tax form like any other which gets attached with one's US 1040 tax return, the enforcement of penalties and compliance for filing FBARS has fallen to the IRS. If one does not file the FBAR form by June 30th of the following year for the prior year's foreign accounts' maximum balances, the penalties are severe, if ever applied. Failing a reasonable cause or a good reason to comply, the IRS can legally fine one a civil penalty of $10,000 for each nonwillful violation. Meaning, if you had an FBAR filing requirement, knew about it, but were negligent (meaning, you just did not file it), the penalty is at a minimum $10,000, for EACH foreign account. The worst part is, if the IRS deems one willfully decided to not comply AND he/she knew about the requirement, and was told to file, the violation is seen as a willful intent to conceal and thus, the penalty is the GREATER of $100,000 or 50% PERCENT of the amount in each account (See 31 USC 5321(a)(5). This is a penalty PER account, PER year.

FATCA REQUIREMENTS: All foreign financial institutions who have signed up with the IRS compliance program, known as "FATCA" (Foreign Accounts Tax Compliance Act) are required to report American citizens and green card holders' names and addresses to the IRS, and any foreign account information pertaining to them. Some countries which have signed up: India, Canada, UK, France.

WORLDWIDE INCOME, CODE SECTION 7701(b): Keep in mind, however, that if one has any sort of foreign asset or foreign income, these items need to STILL be reported in some shape or way on the US 1040. The IRS requires any US citizen, green card holder or a resident alien filing a 1040 to correctly and timely report all components of foreign income on one's US income tax return (1040) by April 15th following the end of the calendar year. There are many forms for many foreign asset & income requirements. For e.g., foreign inheritances or foreign gifts over $100,000 received by a US person are reportable on the 3520. Foreign trust information goes on a 3520 & 3520-A (many Canadian tax free accounts have this requirement), whilst anyone with Canadian retirement accounts (RRSP or RRIF) must report that information on an 8891 to avoid US taxation. Foreign mutual funds, are also a matter subject to the FBAR, as mentioned, as well as being a complex reporting piece to one's tax return, specifically on the Form 8621. You can read more about residency law from the IRS here.