When FBAR filing requirements were first established there was a lot of confusion over exactly how a Financial Account was defined. Although this has been clarified recently, there is still some ambiguity. Let’s take a closer look at how financial accounts are defined and illustrate a few examples.
Under the FBAR rules, a financial account would include the following types of accounts:
- Bank accounts such as checking, savings, money markets, certificates of deposits (CDs) and other time imposed deposits.
- Securities accounts, brokerage accounts, securities derivatives (including options), commodity futures or other financial instrument accounts. These are typically held with foreign based brokerages and investment banks.
- Insurance policies that contain an investment component with a cash value. This would include whole life insurance.
- Mutual funds or similar pooled funds. This encompasses a fund that is held as available to the public that has an identified net asset value along with regular redemptions.
- Any other accounts that are maintained at a foreign financial institution or brokerage with a person who performs the services of a financial institution.
FBAR financial account
An important point to note is that many Americans maintain retirement type accounts in Canada and Mexico as a result of previously working or residing in these countries. Often there is the belief that these accounts are excluded from an FBAR because of certain restrictions placed on the accounts along with the nature of the account payouts. This is often not the case.
So now that we understand the definition of a financial account, let’s examine closely a few examples that may make it a little bit clearer.
Example 1: Joe previously resided in both Mexico and Canada during his lifetime. He has a mexican individual retirement account (Fondos para el Retiro) and Mexican Administradoras de Fondos para el Retiro (AFORE). In addition, he maintains in Canada a Canadian Registered Retirement Savings Plan (RRSP), and Canadian Tax-Free Savings Account (TFSA). These foreign financial accounts are reportable on the FBAR.
Example 2: Susan has an option trading account she established with an Italian bank. In addition, she maintains a whole life insurance policy with a cash surrender value at an insurance institution located in Brazil. Both of these meet the definition of a financial account and, accordingly, an FBAR is required for each.
For many reasons, including ease of use and diversification, Americans maintain a variety of financial accounts at institutions worldwide. In many instances, they may not consider them financials accounts under the FBAR definition. Pay close attention to the type of account you have some that your FBAR filing are complete and accurate.