Who Must File FBAR & US Person Defined
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Who Must File the FBAR?
Each year, US persons who have foreign bank and financial accounts that exceed the threshold for reporting are required to disclose their information on the electronic form FinCEN Form 114 – otherwise known as the FBAR. The FBAR is filed electronically and submitted directly on the FinCEN website. The form is not as complicated as some of the other international information reporting forms, such as Form 5471 — it can be relatively complicated just trying to determine who must actually file the FBAR. Let’s take a brief look at how the Internal Revenue Service defines a US person for FBAR Filing Purposes.
US Person Defined
When people see the term US person, understandably they often times believe it just refers to US Citizens, but that is not true how as it is much more encompassing.
As provided by the IRS:
Who is a U.S. Person?
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A “U.S. person” means:
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A citizen or resident of the United States;
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An entity created, organized, or formed in the United States or under the laws of the United States, any State, the District of Columbia, the Territories and Insular Possessions of the United States, or the Indian Tribes. An “entity” includes but is not limited to, a corporation, partnership, trust, and limited liability company; or
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An estate formed under the laws of the United States.
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Disregarded Entities
U.S. persons that are disregarded entities for tax purposes may need to file an FBAR. The federal tax treatment of an entity doesn’t affect the entity’s requirement to file an FBAR. FBARs are required under a Bank Secrecy Act provision of Title 31, not under any provision of Title 26 (Internal Revenue Code).
U.S. Resident
To determine if a person is a resident of the United States, apply the residency tests in Section 7701(b)(1)(A)(i)-(iii) of Title 26 of the United States Code (USC). When applying the residency tests, the United States includes the States, the District of Columbia, all U.S. territories and possessions (i.e. American Samoa, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, Guam, and the U.S. Virgin Islands), and the Indian lands defined in the Indian Gaming Regulatory Act.
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Example (1): Matt is a citizen of Argentina. He has been physically present in the U.S. every day of the last three years. Because Matt is considered a resident under 26 USC Section 7701(b), he is a U.S. person for FBAR purposes.
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Example (2): Kyle is a permanent legal resident of the U.S. Kyle is a citizen of the United Kingdom. Under a tax treaty, Kyle is a tax resident of the United Kingdom and elects to be taxed as a resident of the United Kingdom. Kyle is a U.S. person for FBAR purposes. Tax treaties with the U.S. do not affect FBAR filing obligations.
Missed Filing the FBAR?
For US Persons who did not timely or accurately report the FBAR in one more prior years — they are considered noncompliant and could become subject to fines and penalties. The Internal Revenue Service has developed various amnesty programs to assist taxpayers with sagely getting int compliance. Before reaching out to the US government, taxpayers may want to consider consulting with a Board-Certified Tax Law Specialist who specializes in offshore compliance matters to get a better understanding of what their options are.
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