Purpose.

FinCEN Form 114 (previously Form TD90.22-1), Report of Foreign Bank and Financial Accounts, is used to report a financial interest in or signature authority over a foreign financial account. The FBAR must be received by the Department of the Treasury on or before June 30th of the year immediately following the calendar year being reported. The June 30 filing date may not be extended. It’s a different filing with your tax filing with the IRS.  See more instructions.

Who Must File an FBAR.

We only discuss individual taxpayers in this article, but it’s noteworthy that this filing requirement is not limited to individual taxpayers.

A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

United States Person.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

United States residents.

IRS Announcement 2009-51 doesn’t further clarify what is meant by “resident of the United States.” The FBAR rules come under Title 31 not the Internal Revenue Code (Title 26) so the definition of “resident” found in IRC 7701(b) is generally inapplicable. However, the Internal Revenue Manual (IRM) does provide guidance. It states that an individual can establish non-residency by showing that he/she:

  • Doesn‟t hold a green card,

  • Doesn‟t meet the substantial presence test of IRC 7701(b)(3), or

  • Has not made the first-year residency election under IRC 7701(b)(4).

Examples of U.S. residents [Please refer to the linked residency decision tree]

  • US Citizens

  • Resident aliens of the United States for any part of the tax year (including green card holders), ·

  • H1B work visa holders who is present in the US under H1B for 1+ years *

  • F1 student visa holders who stayed in the US for 6+ years *

  • J1 student visa holders who stayed in the US for 6+ years *

  • J1 scholar visa holders who stayed in the US for 4+ years *

  • A resident alien of the United States who elects to utilize a bilateral treaty to be treated as a non-resident *

  • A nonresident alien who makes an election to be treated as a resident alien for purposes of filing a joint income tax return, * or

  • A nonresident alien who is a bona fide resident of American Samoa or Puerto Rico.

* There may be exceptions applicable to certain taxpayers and such exceptions should be always analyzed based on different facts and circumstances.

Part-year residents.

Part year residents generally refer to those who are considered residents in part of a tax year but nonresidents in the other part of the tax year as illustrated above.

There seems to be no clear guidance for individuals who are part year residents, who have made an election under IRC 6013(g) or (h) to be treated as a resident for U.S. tax purposes, or who have invoked a treaty provision.  

It should be reasonable to report a financial interest in or signature authority over foreign financial accounts if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the resident period of a calendar year.

What to Report.

Financial Interest.

A United States person has a financial interest in a foreign financial account for which: 

1. the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or

2. the owner of record or holder of legal title is one of the following:

a. An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;

b. more than 50% interest in a corporation;

c. more than 50% interest in a partnership;

d. a trust or other entity in certain circumstances.  See more instructions here.

If your non-US financial account(s) is jointly owned with your family members or friends, as long as your financial interest meets the FBAR reporting requirement, you need to report such interest too. See more information here.

Signature Authority.

Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account. See Exceptions, Signature Authority.

Exceptions: Certain Accounts Jointly Owned by Spouses.

The spouse of an individual who files an FBAR is not required to file a separate FBAR if the following conditions are met:

(1) all the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse;

(2) the filing spouse reports the jointly owned accounts on a timely filed FBAR electronically signed; and

(3) the filers have completed and signed Form 114a, “Record of Authorization to Electronically File FBAR’s” (maintained with the filers’ records). Otherwise, both spouses are required to file separate FBARs, and each spouse must report the entire value of the jointly owned accounts. See instructions for specific items, Part III, Items 25-33.

Also please see other exceptions of financial accounts listed in the table at the end of this article.

Where to File?

Generally FBAR Form 114 must be electronically filed.  Link is here.

http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

FBAR Form 114 Download

https://bsaefiling1.fincen.treas.gov/DownloadSaveServlet?formName=NFFBAR.pdf

Line by Line Instructions Download

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf

How to Efile.

http://bsaefiling.fincen.treas.gov/docs/FBAR_EFILING.pdf

Exchange Rate for FX Conversion.

http://www.fms.treas.gov/intn-12-31-2013.pdf

Failure to Report.

A person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000 per violation. If there is reasonable cause for the failure and the balance in the account is properly reported, no penalty will be imposed.

A person who willfully fails to report an account or account identifying information may be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation. See 31 U.S.C. section 5321(a)(5).

Willful violations may also be subject to criminal penalties under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. section 1001.

Needless to say, it is important to comply with this reporting requirement.

Additional Reading.

IRS Reference Material

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

http://www.irs.gov/pub/irs-utl/IRS_FBAR_Reference_Guide.pdf

Comparison of FBAR and Form 8938 (Statement of Specified Foreign Financial Assets)

We focus on FBAR in this article, but if you are interested in learning more about Form 8938 (Statement of Specified Foreign Financial Assets) reporting which has broader definition and higher threshold, please refer to the IRS link below.

http://www.irs.gov/Businesses/Comparison-of-Form-8938-and-FBAR-Requirements

 

 Category

Form 8938, Statement of Specified Foreign Financial Assets

FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)

Who Must File?

Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified foreign financial assets and meet the reporting threshold

U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold

Does the United States include U.S. territories?

No

Yes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting

Reporting Threshold (Total Value of Assets)

$50,000 on the last day of the tax year or $75,000 at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)

$10,000 at any time during the calendar year

When do you have an interest in an account or asset?

If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax return

Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.

Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.

See instructions for further details.

What is Reported?

Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets

Maximum value of financial accounts maintained by a financial institution physically located in a foreign country

How are maximum account or asset values determined and reported?

Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported

Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.

Use periodic account statements to determine the maximum value in the currency of the account.

Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.

When Due?

By due date, including extension, if any, for income tax return

Received by June 30 (no extensions of time granted)

Where to File?

File with income tax return pursuant to instructions for filing the return

File electronically through FinCENsBSA E-Filing System. The FBAR is not filed with a federal tax return.

Penalties

Up to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also apply

If non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply

Types of Foreign Assets and Whether They are Reportable

Financial (deposit and custodial) accounts held at foreign financial institutions

Yes

Yes

Financial account held at a foreign branch of a U.S. financial institution

No

Yes

Financial account held at a U.S. branch of a foreign financial institution

No

No

Foreign financial account for which you have signature authority

No, unless you otherwise have an interest in the account as described above

Yes, subject to exceptions

Foreign stock or securities held in a financial account at a foreign financial institution

The account itself is subject to reporting, but the contents of the account do not have to be separately reported

The account itself is subject to reporting, but the contents of the account do not have to be separately reported

Foreign stock or securities not held in a financial account

Yes

No

Foreign partnership interests

Yes

No

Indirect interests in foreign financial assets through an entity

No

Yes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity. See instructions for further detail.

Foreign mutual funds

Yes

Yes

Domestic mutual fund investing in foreign stocks and securities

No

No

Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor

Yes, as to both foreign accounts and foreign non-account investment assets

Yes, as to foreign accounts

Foreign-issued life insurance or annuity contract with a cash-value

Yes

Yes

Foreign hedge funds and foreign private equity funds

Yes

No

Foreign real estate held directly

No

No

Foreign real estate held through a foreign entity

No, but the foreign entity itself is a specified foreign financial asset and its maximum value includes the value of the real estate

No

Foreign currency held directly

No

No

Precious Metals held directly

No

No

Personal property, held directly, such as art, antiques, jewelry, cars and other collectibles

No

No

‘Social Security’- type program benefits provided by a foreign government

No

No

Page Last Reviewed or Updated by the IRS: 10-Feb-2014

Also, here is a link summarizing more background information about the FBAR and Form 8938 reporting in Chinese.  This story was originally published by Wall Street Journal but widely referenced by many websites.

http://blog.ifeng.com/article/31461802.html

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