What is FBAR and who should file it?
FBAR, short for the Foreign Bank Account Report, is a report that some individuals have to file with the FinCEN (The US Department of Treasury’s Financial Crimes Enforcement Network). For a given financial year, this annual report is due April 15 the following year.
The purpose of the FBAR is to avoid any tax evasions, money laundering and any other financial crimes by reporting the assets in non-US Financial entities or banks. An important thing to note here is that, filing FBAR is completely different from filing taxes. For one, its submitted to FinCEN directly, not the IRS. So, it doesn’t matter if the foreign income is taxable or not, it still needs to be decalared in FBAR if you are applicable.
Who needs to file an FBAR?
As per the IRS site,
A U.S. person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report if,
- They have a financial interest in or signature or other authority over at least one financial account located outside the United States.
- The aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
What exactly is a “foreign financial account”?
The term foreign financial account is quite broad but covers almost all the general financial entities that you could think of, like banks, brokerage firms etc,. Mainly, they have to be outside the US. But, there are some exceptions as well.
You don’t need to report foreign financial accounts that are:
- Correspondent/Nostro accounts,
- Owned by a governmental entity,
- Owned by an international financial institution,
- Maintained on a U.S. military banking facility,
- Held in an individual retirement account (IRA) of which you’re an owner or beneficiary,
- Held in a retirement plan of which you’re a participant or beneficiary, or
- Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.
What happens if you don’t file an FBAR?
Failing to file the FBAR is taken seriously and you may be subject to monetory and/or criminal penalties. Depending on whether or not you have knowingly failed to file, the penalty varies. It starts from $10,000 and may go as high as $100,000.
It doesn’t take more than 10–15 minutes if you have all the information to file the FBAR. It is strongly advisbile that you do it every year as long as its applicable to you.
Useful Links:
- Official IRS Page: Report of Foreign Bank and Financial Accounts (FBAR)
- FinCEN:
