Each year, the Internal Revenue Service (IRS) reminds U.S. taxpayers who have funds in foreign bank accounts to file a report to identify and place a value on those accounts. The report is called a Report of Foreign Bank and Financial Accounts (FBAR) and it is due annually on April 15.
In 1970, in an effort to open a window into illegal money laundering, tax fraud, and other criminal tax schemes, the requirement to file an FBAR was created under the Bank Secrecy Act. Decades later, in 2010, the requirement for financial institutions to report holdings of U.S. taxpayers was enacted as part of the Foreign Account Tax Compliance Act (FATCA). Together, the IRS is provided reports by the taxpayer and their offshore bank to ensure funds are reported and taxes are paid.
Who must file an FBAR?
An FBAR report is required by law for U.S. persons under the following circumstances:
- Taxpayers who own or have an interest in a financial account located in a foreign country, offshore tax jurisdiction, brokerage, or other financial entity must file an FBAR if the value held meets the IRS threshold.
- The IRS threshold for FBAR reporting is $10,000. If a taxpayer has $10,000 in the aggregate, at any time during a calendar year in a foreign institution, an FBAR report is required.
It is worth noting that an account held in a branch of a foreign bank located within the U.S. is not considered a foreign bank account. That said, an account that is opened with a branch of a U.S. bank, where the account is held in a branch located outside of the U.S., is considered subject to an FBAR. Although FBAR reports are due on April 15 of each year, an automatic extension until October 15 is provided without application. FBAR reports are not submitted with federal tax returns but instead are submitted through the Financial Crimes Enforcement Network platform (FinCEN).
There are some types of accounts on which an FBAR is not due—although the account may be held in a foreign or offshore account. Generally, Individual Retirement Accounts (IRAs), Correspondent accounts, and tax-qualified retirement plans are among others that qualify as exceptions to FBAR reporting.
A missing FBAR can trigger the interest of the IRS in your financial dealings. The penalties for failure to file an FBAR are considerable and can represent a portion of the value of the account itself. If you have significant offshore holdings and were unaware of the FBAR requirement, speak with a reputable tax professional or tax attorney.
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