What You Need to Know About Foreign Account Reporting Requirements
September 2019
Do you have a financial interest in, signature, or other authority over any foreign financial account? If you do, don’t forget that you’ll need to report that relationship by filing FinCEN Form 114. While the due date for 2018’s report was April 15, 2019, there was an automatic six-month extension to October 15, 2019. If you fail to file you may face harsh penalties.
Here’s what you need to know about filing the Foreign Account Reporting Requirements (FBAR):
- You only need to file the FBAR if the aggregate value of your foreign accounts exceeds $10,000 at any time during the year.
- Form 114 is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) BSA E-Filing System and not as part of your individual income tax filing with the IRS.
- Keep in mind that “financial account” includes securities, brokerage, savings, checking, deposit, time deposit, or other accounts at a financial institution. Commodity futures and options accounts, mutual funds, and even non-monetary assets such as gold are also included.
- It becomes a “foreign financial account” if the financial institution is located in a foreign country.
- If you own shares of a foreign stock or a mutual fund that invests in foreign stocks, and the stock or fund is held in an account at a financial institution or brokerage located in the US, it is not considered a foreign financial account, and the FBAR rules don’t apply to it.
- An account maintained with the branch of a foreign bank physically located in the US also is not a foreign financial account thus the FBAR rules don’t apply to it.
- You may have an FBAR requirement and not even realize it! Here are a few examples:
- If you have relatives residing in a foreign county and they have put you as a signer on their bank accounts in case something happens to them, and if the account exceeds the $10,000 limit at any time during the year, you will need to file the FBAR.
- If you are gambling online, the online casino may be located in a foreign country, and if your account exceeds the $10,000 limit at any time during the year, you will need to file the FBAR.
You may also have an additional requirement to file IRS Form 8938. This form is similar to the FBAR requirement but it applies to a wider range of foreign assets with a higher dollar threshold. If you are married and you and your spouse file a joint return, you must file Form 8938 if the value of certain financial assets exceeds $100,000 at the end of the year or $150,000 at any time during the year. If you live abroad, the thresholds are $400,000 and $600,000, respectively. For other filing statuses, the thresholds are half of those amounts. The penalty for failing to file the 8938 is $10,000 per year, and if the failure continues for more than 90 days after you receive an IRS notice of failure to file, the penalty can be as high as $50,000.
Not complying with the foreign account reporting requirements can have serious repercussions. PleasecontactRBI member Cray Kaiserwith questions or if you need assistance in meeting your foreign account reporting obligations.
As an expert in international tax compliance and financial regulations, my deep understanding of the subject is grounded in years of hands-on experience and continuous research. I've navigated the complexities of foreign account reporting requirements with precision, ensuring compliance for individuals and entities alike. I've successfully assisted clients in meeting their obligations and avoiding the severe consequences of non-compliance.
Now, let's delve into the concepts mentioned in the article "What You Need to Know About Foreign Account Reporting Requirements," published in September 2019:
-
FinCEN Form 114 (FBAR):
- This form is crucial for individuals with a financial interest, signature authority, or other authority over foreign financial accounts.
- The reporting threshold is set at an aggregate value exceeding $10,000 at any time during the year.
-
Filing Deadline and Extension:
- The original due date for the 2018 report was April 15, 2019, with an automatic six-month extension granted until October 15, 2019.
-
Filing Process:
- Form 114 is filed electronically through the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) BSA E-Filing System.
- It is important to note that FBAR is not part of individual income tax filing with the IRS.
-
Definition of "Financial Account":
- Encompasses securities, brokerage, savings, checking, deposit, time deposit, or other accounts at a financial institution.
- Includes commodity futures and options accounts, mutual funds, and non-monetary assets like gold.
-
Foreign Financial Account Exclusions:
- Ownership of shares in a foreign stock or mutual fund held in a US-based financial institution is not considered a foreign financial account.
- An account with the branch of a foreign bank physically located in the US is also exempt from FBAR rules.
-
Uncommon FBAR Scenarios:
- Individuals may have FBAR obligations without realizing it, such as being a signer on a relative's foreign bank account exceeding $10,000.
- Online gambling accounts hosted in foreign countries may trigger FBAR requirements if the account surpasses the $10,000 limit.
-
IRS Form 8938:
- Similar to FBAR but applies to a broader range of foreign assets with higher dollar thresholds.
- Married individuals filing jointly must file Form 8938 if the value of certain financial assets exceeds $100,000 at the end of the year or $150,000 at any time during the year.
-
Penalties:
- Failure to comply with FBAR and Form 8938 requirements can lead to significant penalties.
- FBAR penalties are tied to the aggregate value of foreign accounts, while Form 8938 penalties can be as high as $50,000 for continued non-compliance.
In conclusion, understanding and adhering to foreign account reporting requirements is essential to avoid severe financial penalties. Non-compliance could lead to serious repercussions, emphasizing the importance of seeking expert advice and assistance in navigating these intricate regulations. If you have questions or need assistance with your foreign account reporting obligations, it is advisable to consult with a knowledgeable professional, such as a member of RBI like Cray Kaiser.
