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foreign bank account reporting FBAR

FBAR – Foreign Bank Account Reporting

Last Update Date : October 04, 2018

FBAR Instructions 2018

While the requirement to report the details of all foreign bank accounts, held by a taxpayer has existed for many years, many people continue to remain unaware of the need to comply and the penalties that can be imposed for failure to comply. However, the IRS has started to enforce “Foreign Bank Account Reporting(FBAR)”, and for American Indians, who are classified as U.S. residents or U.S. Nation, failure to report the details of all your offshore accounts can land you in a deep financial mess with penalties and severe punishments. This guide will help you understand how to file FBAR for the current year and missed previous years.

What is FBAR?

Just as India has cracked on down black money and tax evasion, the U.S. has been cracking down on tax evaders with compliance requirements such as FATCA, FBAR, etc. Foreign Bank Account Reporting (FBAR) requires U.S. persons to report the details of all their foreign bank account details that are held abroad (outside the U.S.).

The filing of FBAR does not result in paying taxes on the money held abroad. However, non-reporting can cost penalise you. The IRS simply requires U.S. persons to report the details of all offshore accounts. The objective of FBAR is to uncover those cheating on their taxes by hiding their money in offshore accounts.

Purpose of FBAR

Many U.S. persons maintain overseas financial accounts for legitimate reasons like convenience or easy access. However, some people may use it to hide their money from the tax authorities. So, the U.S. government uses it as a tool to identify unreported income generated or maintained abroad or traces funds used for unlawful purposes.

FBAR Due Date 2018

The due date for filing FBAR is with your yearly income tax return filing. FBAR must be filed by April 15th of the year following the calendar year being reported, or if you have taken an extension for your U.S. Tax Return, then the due date will be 15th October.

The FBAR filing deadline for the calendar year 2015 and the years prior to it was June 30, and no extension of due date was given. The government implemented the Surface Transportation and Veteran Health Care Choice Improvement Act of 2015 post which the due date was changed to April 15. The government also started giving a 6 months maximum extension of the deadline. Hence, you do not need to make specific requests for extension. But, if you do not have all the information necessary to file your return by the extended due date, you should file as complete a return as possible and amend the report when additional or new information becomes available.

Note: The current due date was April 17th 2018.

U.S. Tax Filing from India

Who must file FBAR?

If you are a U.S. person, that is a person considered as U.S. tax resident (see below), including persons having signatory authority, and the total of all your foreign bank account balances & Foreign asset value exceeds the threshold limit of $10,000, at any point during the tax year, then FBAR filing is compulsory. So, this means that even if for one day your balance crosses over by $10,000, then you must file FBAR.

Who is a US Tax Resident?

  • A United States citizen/resident of the United States
  • Green Card Holder
  • An entity created or organized in the United States or under the laws of the United States. The term “entity” includes but is not limited to, a corporation, partnership, and limited liability company;
  • A trust formed under the laws of the United States; or
  • An estate formed under the laws of the United States.
  • A person who passes the Substantial Presence Test
    • Be in the country for 31 days in the current tax year and
    • Have been present in the country for 183 days for the past three years including current tax year

FBAR Filing by Disregarded Entities

There are some entities under the tax laws which although are U.S. persons by definition but disregarded for tax purposes. Such entities may be required to file FBAR. The federal tax treatment of the entity also does not affect its requirement to file an FBAR.

Where to File an FBAR?

The FBAR return is not filed with the federal tax return. It is filed electronically through the BSA e-Filing system. Tax filers can use this system to quickly and securely file their return. Filers receive an acknowledgement of each submission.

FBAR Filing Requirements

When filing your FBAR, it is important to declare more than just your foreign bank account balances. You will also have to report foreign:

  • stocks or securities held in offshore financial institutions
  • bank accounts held in American Banks in a foreign country
  • mutual funds and life insurance policies

To file a complete report of all your foreign bank account and asset details, submission of Form 8938 will also be required.

FinCEN Form 114 Instructions

FinCEN 114 Instructions

While the IRS has started enforcing FBAR compliance, filing is done with the Treasury Department. The report can be filed using the FinCen’s BSA e-filing portal yourself or enlisting a third party to prepare and file your FBAR. In case of joint accounts, and/or a third party is used to file FBAR, then the joint account holder would need to grant permission by filling Form FinCen 114a. Additionally, the details of foreign joint accounts and individual foreign accounts need to be filed separately.

If you have not filed FBAR, the Streamlined Filing Compliance Procedures makes it so that all penalties are waived for US taxpayers and only a 5% miscellaneous offshore penalty is levied on the financial assets held in foreign countries, for those living in the US.

Exceptions to the FBAR Filing Requirements

The following persons are exempt from filing the FBAR:

  • Consolidated FBAR: A United States person that is an entity and is named in a consolidated FBAR filed by a greater than 50 percent owner is not required to file a separate FBAR.
  • IRA Owners and Beneficiaries: If you are an owner or beneficiary of an IRA, you do not need to report a foreign financial account held in the IRA.
  • Participants in and Beneficiaries of Tax-Qualified Retirement Plans: If you are a participant in or beneficiary of a retirement plan described in Internal Revenue Code under section 401(a), 403(a), or 403(b), you are not required to report a foreign financial account held by or on behalf of the retirement plan.
  • Signature Authority: Individuals who have signature authority over, but no financial interest in, a foreign financial account are not required to report the account in the following situations:
    • An officer or employee of a bank who is examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration is not required to report signature authority over a foreign financial account owned or maintained by the bank.
    • An officer or employee of a financial institution who is registered with and examined by the Securities and Exchange Commission or Commodity Futures Trading Commission is not required to report signature authority over a foreign financial account owned or maintained by the financial institution.
    • An officer or employee of an Authorized Service Provider is not required to report signature authority over a foreign financial account that is owned or maintained by an investment company that is registered with the Securities and Exchange Commission. Authorized Service Provider means an entity that is registered with and examined by the Securities and Exchange Commission and provides services to an investment company registered under the Investment Company Act of 1940.
    • An officer or employee of an entity that has a class of equity securities listed (or American depository receipts listed) on any United States national securities exchange is not required to report signature authority over a foreign financial account of such entity.
    • An officer or employee of a United States subsidiary is not required to report signature authority over a foreign financial account of the subsidiary if its United States parent has a class of equity securities listed on any United States national securities exchange and the subsidiary is included in a consolidated FBAR report of the United States parent.
    • An officer or employee of an entity that has a class of equity securities registered (or American depository receipts in respect of equity securities registered) under section 12(g) of the Securities Exchange Act is not required to report signature authority over a foreign financial account of such entity.
  • Trust Beneficiaries: A trust beneficiary with a direct or indirect financial interest in more than 50 percent of the trust assets or income is not required to report the trust’s foreign financial accounts on an FBAR if the trust, trustee of the trust, or agent of the trust:
    • is a United States person; and
    • files an FBAR disclosing the trust’s foreign financial accounts.

The following types of foreign financial accounts are exempt from the FBAR filing requirement:

  • Certain Accounts Jointly Owned by Spouses: The spouse of an individual who files an FBAR is not required to file a separate FBAR if certain conditions are met as previously discussed; refer to “Reporting Jointly Held Accounts.”
  • Correspondent/Nostro Account: Correspondent or Nostro accounts (maintained by banks and used solely for bank-to-bank settlements) are not required to be reported.
  • Governmental Entity: A foreign financial account of any governmental entity is not required to be reported by any person. For example, a state-administered college or university, a government employee etc. are not required to file an FBAR because it is a governmental entity.
  • International Financial Institution: A foreign financial account of any international financial institution (if the United States government is a member) is not required to be reported by any person. Examples are the World Bank and the International Monetary Fund (IMF).
  • The United States Military Banking Facility: A financial account maintained with a financial institution located on a United States military installation is not required to be reported, even if that military installation is outside of the United States.

What is Offshore Voluntary Disclosure Program(OVDP)?

In 2012, OVDP was made available again for taxpayers wishing to voluntarily disclose their income tax and foreign asset information following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offered people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfil their tax and information reporting obligations, including the FBAR. The program ended in September 2018.

FATCA And FBAR

For US taxpayers who are living abroad and have dropped out of filing their income tax returns every year diligently, the implementation of the Foreign Account Tax Compliance Act (FATCA) in 2014, makes it easy for the IRS to cross check the information provided by the foreign financial institutions against that of the taxpayer’s form 1040. Additionally, OVDP will also not be available at this juncture. Therefore, upon comparison by the IRS, if it is discovered that a US person has failed to report their foreign account and asset details, or has filed inaccurate reports, severe penalties can be levied including serving jail time.

Streamlined Filing Compliance Procedures

On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to those taxpayers who were non-residing in the U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.

On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States.

Delinquent FBAR Submission Procedures

Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’s BSA e-Filing system. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option.

The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.

FBAR Penalties 2018

  • Failure to file an FBAR when required to do so may result in civil penalties, criminal penalties, or both. When a United States person learns that an FBAR should have been filed for a previous year, the filer should electronically file the delinquent FBAR report using the BSA e-Filing System website.
  • The system allows the filer to enter the calendar year reported, including past years, on the online FinCEN Form 114.
  • It also offers an option to “explain a late filing” or to select “Other” to enter up to 750 characters within a text box where the filer can provide a further explanation of the late filing or indicate whether the filing is made in conjunction with an IRS compliance program.
  • If the foreign financial account is properly reported on a late-filed FBAR, and IRS determines that the FBAR violation was due to reasonable cause, no penalty will be imposed.
  • Those required to file an FBAR who fail to properly file a complete and correct FBAR may be subject to civil monetary penalties.
  • For penalties that are assessed after August 1, 2016, whose associated violations occurred after November 2, 2015, the following chart highlights the inflation-adjusted civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements.
Violation Civil Penalties Criminal Penalties U.S. Code sections
Non-Willful Violation Up to $12,459 for each negligent violation N/A 31 U.S.C. section 5321(a)(5)(B)
Willful – Failure to File FBAR or retain records of account Up to the greater of $124,588, or 50 percent of the amount in the account at the time of the violation Up to $250,000 or 5 years or both 31 U.S.C. section 5321(a)(5)(C); 31 U.S.C. section 5322(a); 31 C.F.R. section 103.59(b) for criminal. The penalty applies to all U.S. persons.
Willful – Failure to File FBAR or retain records of account while violating certain other laws Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation Up to $500,000 or 10 years or both 31 U.S.C. section 5322(b); 31 C.F.R. section 103.59(c) for criminal The penalty applies to all U.S. persons
Knowingly and Willfully Filing False FBAR Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation $10,000 or 5 years or both 18 U.S.C. section 1001; 31 C.F.R. section 103.59(d) for criminal. The penalty applies to all U.S. persons.

Note:

  • Civil and Criminal Penalties may be imposed together. 31 U.S.C. section 5321(d).
  • It is possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account.

So, whether you have yet to file FBAR or need to file FBAR for this current year, enlist the aid of the U.S. Expat tax experts at H&R Block India, who will ensure all the details of your foreign accounts and assets are reported accurately and in a timely manner, so that there are no severe penalties levied.

Not sure how to file your U.S. Tax Return? Let H&R Block help you file your taxes.

Responsibility for Child’s FBAR

Generally, a child is responsible for filing his or her own FBAR report. If a child cannot file his or her own FBAR for any reason, such as age, the child’s parent, guardian, or another legally responsible person must file it for the child.

Signing the child’s FBAR

If the child cannot sign his or her FBAR, a parent or guardian must electronically sign the child’s FBAR. In item 45 Filer Title enter “Parent/Guardian filing for child.”

Common Misconceptions Regarding FBAR

  • Many people have a misconception that if they have multiple overseas accounts and some of them do not have over $10,000 as balance, they do not need to report such accounts. This is incorrect because you need to report all your accounts if the highest aggregate value of all of the foreign accounts on any day in the tax year is over $10,000, then all accounts must be reported on the FBAR.
  • Some people also believe that if an account beneficially belongs to another person or nominee, then the nominee is not required to report the account. But the truth is that the nominee also needs to report the account by filing FBAR if the balance exceeds the minimum threshold.
  • Improper or incorrect knowledge of reporting requirements is another misconception. E.g., foreign mutual funds or foreign life insurance/foreign annuity with a cash surrender value must be reported.
  • Another common misconception is that people think that they need to apply for an extension if they miss the due date to file FBAR. However, they don’t need to do it because they automatically get an extension of 6 months.
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