Let’s face it. The FBAR reporting requirements can be challenging. But understanding the rules is critical for expats. Let’s take a close look at the requirements and how you can stay compliant.
There are many legitimate reasons why people maintain overseas accounts. This includes convenience, higher returns and access. The FBAR is required by the U.S. government because many of the foreign bank and financial institutions are not be subject to the same reporting and filing requirements as domestic banks. Many foreign countries have also had a history of secrecy. The FBAR is also used as a mechanism to identify individuals who could be utilizing foreign bank accounts to violate U.S. law. The data contained in FBARs is often used to locate or trace monies used for illegal purposes or to identify certain unreported income that has not been properly subject to U.S. taxation.
The Bank Secrecy Act (BSA) gave the Department of Treasury the authority to collect and maintain data on U.S. citizens who have financial interests in foreign bank accounts or who have signature authority over such accounts outside of the U.S. A provision in the BSA requires the FBAR to be filed if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year. Responsibility of FBAR enforcement lies with the IRS, who is responsible for investigating any potential violations, collecting any civil penalties that are assessed, and issuing administrative rulings and procedures for enforcement.
U.S. persons must file an FBAR if they have a financial ownership interest in (or signature authority over) any financial account(s) and bank accounts outside of the U.S. and the aggregate maximum value of the account(s) exceed $10,000 at any point during the calendar year. A U.S person is defined as:
- A citizen or resident of the United States;
- An entity that was organized or created in the U.S. “Entity” is deemed to include (but is not limited to), a partnership, corporation, and limited liability company organized in any state;
- A trust that was formed under the laws of the U.S.; or
- An estate that was formed under the laws of the U.S.
In addition, any entity that is a U.S. person and is a disregarded entity for tax purposes is generally required to file an FBAR. To be clear, the tax treatment of a company or entity does not impact the entity’s FBAR filing requirement. Even though the IRS enforces FBARs, remember that the requirement is made under the Bank Secrecy Act provision of Title 31 and not under any provisions of the Internal Revenue Code.