There are many questions which arise when people hear FBAR. We’ll address some of them here.
1. What is an FBAR?
An FBAR is a filing requirement created under the Bank Secrecy Act of 1970 (so it’s not new but it has gained much more attention recently). The requirement is for the disclosure of foreign bank and financial accounts which the taxpayer owns or controls to the Financial Crimes Enforcement Network (“FinCEN”), a part if the US Department of the Treasury.
2. Who must file an FBAR?
An FBAR must be filed by any US person with a financial interest in or signature authority over foreign financial accounts which meet the thresholds for reporting. For individuals that means a US citizen or a US resident alien, US green card holders are considered resident for tax purposes even if they don’t live in the US. Currently, the threshold is an aggregate value of US$10,000 at any time during the calendar year.
3. How do I file an FBAR?
An FBAR must be filed online with FinCEN (https://www.fincen.gov/report-foreign-bank-and-financial-accounts). You can also ask your tax representative to file for you (Enrolled Agent, CPA, or Attorney).
4. I filed a Form 8938 is that sufficient?
Unfortunately, no that’s not sufficient. A Form 8938 is filed with the IRS, a different part of Treasury from FinCEN. A Form 8938 has different (much higher) thresholds for reporting. If you filed a Form 8938 you must also file a FinCEN Form 114 but not necessarily the other way around.
5. How would I have known about this requirement?
The requirement is not hidden. In fact, it is detailed in Part III of Schedule B of your 1040. In the signature section of the 1040 requires the taxpayer to attest to having examined the “return and accompanying schedules” Schedule B explicitly asks if you have a foreign account and then states: “If “Yes,” are you required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements”.
6. What other filings do I need to be aware of?
In addition to a Form 8938, you may have reporting requirements related to:
- Form 3520 and/or Form 3520-A (reporting related to foreign trust and foreign gifts)
- Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations)
- Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund)
- Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships)
7. Why is this so important?
In addition to possible fines not filing informational returns with respect to foreign assets and earnings not only may subject you to fines but since the HIRE Act in 201 it stops the statute of limitations from running on your returns. This means that instead of your return being beyond review by the IRS after 3 years it remains open to review until 3 years after any missing information returns have been filed.
Prior to the HIRE Act, only the parts of your return relevant to the missing information return could be examined after the normal statute of limitations period had expired. After the HIRE Act everything in your return remains open to examination if the necessary information return relating to foreign assets or income have not been filed.