Blogs

Introduction: FBAR

Foreign Bank Account Report (FBAR) is a step taken by the US to detect any sort of fraud or deception related to tax and hiding of money in different seaward accounts. The Internal Revenue Service (IRS) has made it mandatory for all taxpayers to disclose their financial records and balances from all funds they might hold in any foreign banks. This is to monitor any offshore accounts a taxpayer may have. According to the Bank Secrecy Act, reports on foreign financial accounts (FBAR on FinCEN Form 114) should be submitted to the treasury department every year. The FBAR should be filed by 15th April every year.

How to file FBAR?

The process of filing FBAR is different to tax return filings. The FBAR is filed individually with the department of treasury and not with IRS. You have to use FinCEN 114 for filing FBAR and then submit it through electronic means (BSA e-filling site). The method of filing FBAR is very easy. All you need to do is gather all the information from your accounts and put it into the online system. You can also hire a third party for filing your FBAR, but before doing so you have to file FinCEN 114a to permit them to do so on your behalf.

When to file FBAR

You should file your FBAR by 15th April every year. If you fail to meet the annual deadline to file FBAR by the calendar date (April 15), then you are allowed an automatic expansion of six months which is up to October 15. Please note you don’t need to request an extension to file FBAR as the government grants an automatic extension. For filers affected by natural disasters, the government may further grant an extension to the due date.

Who should file FBAR?

A US person which includes a citizen, resident, company, partnership, limited liability company, estate or a trust, should file FBAR. The objective is to report any financial interest in or if you are a signatory or hold any other authority over at least one financial account located outside the United States. Note that this is applicable if the aggregate value of all foreign accounts exceeds $10,000 at time point during the calendar year reported, not just at the end of the year.

There is no need of for filing FBAR for the annual year if:

• All your foreign financial accounts are disclosed on the FBAR for an incorporated entity.
• All your foreign financial accounts are co-owned with your spouse and:
• You completed and signed FinCEN Form 114a authorizing your partner to file on your behalf, and your partner reports the jointly owned accounts on a timely filed, signed FBAR.

Is it necessary to file FBAR?

The answer to this is YES! Failure to comply with FBAR filing requirements will result in aggressive penalties or fines. Penalties levied can be up to $100,000 per infringement and potentially any additional fines depending on the funds in your account at the time of the violation.

Accounts that need to be filed for FBAR.

• You must disclose information about ALL foreign bank accounts
• Any foreign stock or securities in the financial account of foreign banks
• Any foreign mutual funds
• Any bank accounts that you are holding at a foreign branch of a US bank (situated outside the US).
• Any life insurance policy issued by foreign banks