In an attempt to identify unreported income, the Department of Treasury was given the authority to collect certain information from U.S. persons who have financial interests in (or even signature authority over) certain financial accounts that are maintained in foreign financial institutions.
The Report of Foreign Bank and Financial Accounts (FBAR) must be filed if the aggregate maximum values of qualified foreign accounts exceed $10,000 at any point during the year.
So how do we define a U.S. person? A “U.S. person” is defined as:
- Any citizen or resident of the United States;
- An entity that was organized or created under the laws of the United States. The word “entity” is deemed to include corporations (including C-Corporations and S-Corporations), general and limited partnerships, and limited liability companies;
- A trust that is formed under U.S. law; or
- An estate that is formed under U.S. law.
Entities that are U.S. persons and are deemed disregarded for income tax purposes may also be required to file an FBAR. How an entity is treated for tax purposes does not impact the entity’s requirement to file an FBAR.
A U.S. resident is an alien residing in the U.S. The U.S. is deemed to include the District of Columbia, all United States territories and possessions (i.e. Guam, American Samoa, the Commonwealth of Puerto Rico, the United States Virgin Islands the Commonwealth of the Northern Mariana Islands), along with the Indian lands.
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There are many countries that have tax treaties with the U.S. that may define how they are taxed and avoid double taxation and even duplicate filing requirements. It is important to note that tax treaties with the U.S. do not impact FBAR filing requirements. Should a person be excluded from a filing requirement in the U.S., as long as they meet the other filing criteria an FBAR obligation is still met.
So let’s take a look at a few examples:
Phil is a citizen of Brazil. He has been physically present in the U.S. each and every day of the last four years. Because Phil is considered a resident through application of the rules under 26 U.S.C. § 7701(b), he would be required to file an FBAR.
Kim is a permanent legal resident of the U.S. but a legal citizen of France. Under a specified tax treaty, Kim is a tax resident of France and elects to be taxed as a resident of France. Kim is required to file an FBAR.
Defining who is required to file an FBAR can be difficult. Make sure that you clearly understand the definitions as established in the law. A qualified CPA who deals specifically with FBAR issues can certainly assist with the complexity and allow you to sleep at night.