FBAR Filing Requirements – Advice On What You Need To Know

FBAR Disclosures Top 1 Million

Yesterday, the IRS announced that FBAR disclosures topped 1 million filings to a record of 1,163,229 FBARs, up more than 8 percent from the year prior. As awareness and compliance efforts increase, it is important that taxpayers in the US and overseas are aware of the FBAR filing requirements and the FinCen Form 114 (the “FBAR” form).

FBAR Filing Requirements

U.S. taxpayers with foreign accounts exceeding certain thresholds must file Form 114, Report of Foreign Bank and Financial Accounts, known as the “FBAR.” All FBARs must be filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCen) no later than June 30.

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account whose aggregate value exceeded $10,000 at any time during 2015, you meet the FBAR filing requirements. The Bank Secrecy Act requires you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

Form 8938 Filing Requirements

Under FATCA, certain U.S. taxpayers holding specified foreign financial assets outside the United States must report those assets to the IRS, generally using Form 8938, Statement of Specified Foreign Financial Assets. This is filed as part of the individual tax return (i.e. Form 1040).

Reporting thresholds vary based on whether a taxpayer files a joint income tax return or lives abroad. The lowest reporting threshold for the Form 8938 is $50,000 in specified foreign financial assets. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad.

Failure to report foreign financial assets on Form 8938 may result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

Reporting Worldwide Income

If you are a U.S. citizen or resident alien, you must report income from all sources within and outside of the U.S, including income from foreign trusts and foreign bank and securities accounts. This is true whether or not you receive a Form W-2 Wage and Tax Statement, a Form 1099 (Information Return) or the foreign equivalents.

Not reporting income from foreign sources may be a crime. The IRS and its international partners (aka “other foreign countries”) are pursuing those who hide income or assets offshore to evade taxes.

Taxpayers that meet the FBAR filing requirements need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and requires U.S. citizens to report the country in which each account is located.

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