Determining the maximum account value for purposes of an FBAR filing can be more difficult than it seems. The maximum value is defined as the reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the specific year. Monthly or weekly account statements can be utilized to determine the maximum value of the account, provided that they represent the amount fairly and accurately.
Taking a closer look at the mechanics
First, you would determine the maximum account value in the local account currency. Once that has been identified, convert the maximum account balance for each and any foreign account into U.S. dollars by using the exchange rate in effect on the last day of the year. You do not use the exchange rate in effect on the date of the highest account balance.
Example #1: A French bank account would generally be valued in Francs. Locate the maximum value of the account in Francs first. Next, convert this value into U.S. dollars using the conversion rate on December 31st.
When doing the conversion, make sure to use the Treasury Reporting Rates of Exchange. If no Treasury Financial Management Service rate is available, make sure to utilize another verifiable exchange rate and document the source of the rate. If the country has multiple exchange rates, ensure you use the rate that applies if the currency as if it was converted into U.S. dollars on the last day of the year.
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FBAR Account Balance
Example #2: Sam, a U.S. person, owns foreign accounts A,B, and C that has maximum account balances of $600, $11,000 and $2,400, respectively. Sam must file an FBAR because the aggregate value of the combined accounts is $14,000. Sam must report the accounts A, B, and C on an FBAR even though accounts A and C have maximum account values that fall below $10,000.
Example #3: Jessica, a U.S. person, has foreign accounts X,Y and Z with account balances of $8,000, $1,550 and $4,500, respectively. Jessica is required to report accounts X, Y and Z because the aggregate value of all the accounts exceeds $10,000.
Example #4: Mary, a U.S. person, has a foreign bank account with a maximum value of $14,200 but the account does not produce any interest or dividend income. Mary is required to file an FBAR even though no income is generated. Whether or not a foreign account generates income is irrelevant. An FBAR is still required.
Determining the FBAR account balance requirement is often tougher than it seems. Make sure that you maintain your historical bank and brokerage statements as they will come in very handy.