Why is the FBAR Not Treated the Same as Other Tax Forms?
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The FBAR is Not a Tax Form Filed with the IRS
When it comes to submitting tax forms to the Internal Revenue Service, there are literally thousands of different forms a person may have to file. Some of the more common forms in addition to the IRS Form 1040, are Schedules A, B, C, and D. If a US Person has foreign investments — such as overseas bank accounts or assets — there are several additional tax and reporting forms they may have to file as well, such a Form 3520, Form 3520-A, Form 8938 and Form 5471. While the FBAR (Foreign Bank and Financial Account Reporting) Form is a very common form as well, it is not actually a Tax Form. Rather, it is a FinCEN (Financial Crimes Enforcement Network) Form used to report the maximum value of the foreign bank and financial accounts – when the +$10,000 threshold has been met. Let’s review some of the basic facts about the FBAR:
Top 25 FBAR Questions & Answers
Let’s take a look at 25 of the basics to filing FBARs so that you can know (almost) everything about foreign account and financial account reporting to avoid unnecessary FBAR problems:
What if I Don’t Have to File a Tax Return?
Even if a person does not have to file a tax return, they may still have to file the annual FBAR.
In other words, having to file the FBAR is not dependent on whether or not the person has to file a U.S. tax return. When the person is considered a U.S. person (more than just individuals) and they meet the threshold requirement for filing the FBAR, then they still have to file the form — even if they do not have to actually file a tax return that year.
When is the FBAR Due?
Our FBAR Basics summary starts with the most important FAQ, which is when is the FBAR Due?
The Form is technically due when a person’s tax return is due, which is generally 4/15 of each year – or whichever date the tax return is due.
Currently, FinCEN Form 114 is on automatic extension through October 15th (or whichever October filing date the extension falls on in the current year).
How do I File for an Extension?
The Form extension is automatic so that no form is required to extend the FBAR filing due date.
What if I owned the Foreign Accounts Before Coming to the U.S.?
This is a very common question/concern.
When a person files the annual FBAR, they are providing the U.S. government with a snapshot of their foreign accounts.
It does not matter if the account predated the person becoming a U.S. person.
Thus, whether or not the overseas account was opened before or after becoming a U.S. person, it is reportable on the FBAR.
Do I File FinCEN Form 114 if I Live Outside of the U.S.?
Even when a person resides outside of the United States, they are still subject to the same FBAR reporting requirements as U.S. persons who reside inside the United States.
But What if the Foreign Money does Not Belong to Me?
Whether or not the money belongs to the filer is not dispositive of whether or not the account should be included on the FBAR.
If the account is under the filer’s name, then presumably it is included on the FBAR — although ownership of the money may impact issues involving penalty mitigation.
What if None of the Foreign Accounts Exceed $10,000?
This is also a very common question.
There is no requirement that the specific account balance exceeds $10,000.
Rather, the determining factor is whether the annual aggregate total of all accounts combined exceeds $10,000 on any given day of the year.
If so, then all of the accounts should be included on the FBAR, which needs to include all dormant accounts as well.
What if None of the Accounts Generate Income?
The U.S. government does not require that the foreign accounts generate any income in order for the account to be included on the FBAR.
Therefore, even if the account does not generate any income, it should still be included on the FBAR.
What if I Don’t Know the Exact Account Balances?
In general, it is better to report the accounts with the best estimated maximum balance, than to mark off the “maximum balance unknown” box — or even worse, not filing the FBAR at all.
Of course, the filer should not completely guess or fabricate the balance amount. If the exact maximum balance is unknown and a reasonable estimate cannot be made, then the filer may indicate the box that says maximum value unknown.
What if my Minor Child has Foreign Accounts?
Minor children must also file the FBAR. There is no current exception to FBAR filing for minors.
Is a Foreign Pension Reportable?
Yes – in general, foreign pensions are reportable.
Foreign pension accounts would qualify as foreign financial accounts and therefore would be included on the FBAR.
Is a Foreign Life Insurance Policy Reportable?
A foreign life insurance policy is reportable when it has a surrender value or cash value.
It is important to note that the reportable value would be the surrender or cash value and not the policy face value — since the policy face value is not the current maximum value.
Are Foreign Investment Accounts Reportable?
Yes. and we realize it can be very difficult, especially in situations where a person is trying to decipher the maximum value of a foreign mutual fund or SICAV in accordance with the NAV.
In this type of situation, the best available value would have to do.
Is Foreign Stock Reportable on the FBAR?
Stock certificates are generally not included on the FBAR. Conversely, stock accounts are reported on the FBAR.
Is Foreign Cryptocurrency on the FBAR?
There is no definitive guidance on whether cryptocurrency or other virtual currency is included on the FBAR.
You could find other resources we have prepared for FBAR cryptocurrency to get a better idea of whether you may consider reporting it or not.
Which FBAR Exchange Rate do I Use?
FBAR filers can use any exchange rate that is considered reasonable.
The two most common exchange rates filers use are the average exchange rates published by the Internal Revenue Service and the exchange rates published by the Department of Treasury.
What if I already Filed Form 8938?
Form 8938 is similar but not identical to the FinCEN 114.
Just because a person filed Form 8938 in a given year does not exempt them from filing the FBAR in the same year.
Some accounts are required to be disclosed on both forms, while other accounts and assets may only be required on one of the forms — and duplicate reporting is common.
Does a Business file?
Yes, businesses such as corporations, partnerships, and joint ventures may also have to file the FBAR if they meet the threshold requirement for reporting.
Does a Trust file?
Yes, if a trust has a foreign account(s) associated with it, then the trust must disclose the foreign account(s).
Does an Estate file?
Yes – and with estates, it can get very complicated because there may be a requirement for the decedent, the estate, and also the beneficiary.
What if a Decedent Had Foreign Accounts?
If the decedent had foreign accounts, it is important to try to determine if the decedent also had an FBAR filing requirement — and if so, was the decedent in compliance for the prior years?
Ideally, this should be completed before filing the decedent’s final tax return.
Non-Willful vs. Willful Penalty
The majority of penalties are civil in nature (versus criminal).
Civil penalties can be broken down further into non-willful and willful penalties.
While the penalties can be tough — and online fear-mongering is rampant — it is important to note that not everyone gets hit with willfulness penalties.
We have separate resources to guide you on Penalties.
Can I Dispute the Penalty in Tax Court?
No.
FinCEN Form 114 is not a tax form. Rather, it is an international reporting form and the penalties associated with the FBAR are not tax liabilities.
While you cannot dispute the penalty in Tax Court, you have the right to pursue the matter in Federal Court.
What about Double-Counting?
This is probably the single most common question we receive.
Let’s say you have $100,000 in an account that you transfer five times, into five different accounts. On the FBAR, it will look like you have $500,000, instead of $100,000.
Remember, the Form is not used to report the total amount of money you had overseas. Rather, it is used to report the maximum value of the different accounts you had.
It is common to transfer money over different accounts and that does not presume that the total balances on the FBAR represent the total amount of money the filer has.
What if I Made a Mistake?
It depends on the type of mistake. For example, was it a mistake in reporting the balance, or were accounts completely missed?
If it was inaccurate reporting, then the level of the inaccuracy may determine what steps the filer should take to resolve the inaccuracy.
For missed accounts, the filer will generally have to go back and resolve the issue with one of the FBAR Amnesty Programs.
Our International Tax Lawyers Represent Clients Worldwide
Our FBAR Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance with getting compliant.