FBAR filing is an important requirement for individuals who reside in the US. Whether the individual is a US resident or an alien resident, FBAR filing is mandatory when certain conditions are met. While filing the report in necessary, many people don’t know what is FBAR filing.
In this article, we will explain what is FBAR filing, how to file the report, and who should submit the report.
If you need help with your FBAR filing, please call us at 407-344-1012, or email us at firstname.lastname@example.org.
About FBAR: What is FBAR Filing?
Foreign Bank and Financial Accounts Report, or FBAR, filing is compulsory for anyone who resides in the US and owns foreign accounts. The individual who has financial interest in the accounts must submit a report to the IRS.
Before explaining what is FBAR filing, let’s first take a look at the history of the filing requirement. FBAR filing was introduced in 1970 after passing of the Bank Secrecy Act (BSA) by the congress. The Act was put forward to put a stop to money laundering activities.
Under the requirements of the BSA, every US citizen who has a financial interest or owns a foreign financial accounts whose value exceed a certain threshold is required to report the asset. The current threshold of the foreign asset is $10,000. Individuals who are resident of the US and who owns foreign accounts whose aggregate value exceed the threshold set by the US government is required to know about what is FBAR filing.
An important thing to know about what is FBAR filing is that the form was previously known as TD F 90-22.1. But the name of the form was changed to FBAR in 2003. Form FBAR was introduced after the formation of the Financial Crimes and Enforcement Network (FinCEN) that had delegated the responsibility of collecting the form to the Internal Revenue Service (IRS).
IRS collects information regarding foreign assets held by the US citizens. Moreover, the tax collecting agency is responsible for ensuring that the rules regarding foreign asset reporting is not violated. The agency sets penalties for non-reporting of FBAR. Moreover, it implements and makes laws relating to filing of the report. Understanding the role of FBAR will help in knowing about what is FBAR filing.
Many people maintain foreign accounts for different reasons. Some of them maintain a foreign account due to lower transaction fees. Other find it more convenient to open a foreign bank account for the family members who reside abroad. Whatever the reason for opening a foreign account, it’s essential that you know about what is FBAR filing.
FBAR filing allows the US government to know whether an individual’s foreign asset is taxable. Moreover, one of the main objectives of FBAR filing is to prevent money laundering, tax evasion, hiding drug money, and other illegal activities.
Any individual who is a US resident and owns a financial account anywhere in the world must know what is FBAR filing. Filing of the FBAR helps in the monitoring of foreign funds. The IRS looks at the FBAR to know about unreported income that must be taxed.
Who Should Know about What is FBAR Filing?
Not everyone is required to know what is FBAR filing. In order to determine whether you should know about what is FBAR filing, you should read about the following requirements.
- Are you a citizen of the US?
- Do you have a foreign account?
- Is the aggregate value of the foreign account is more than $10,000?
- Do you have signatory and financial authority over foreign funds?
- Do you own a foreign fund exceeding the threshold mentioned above on behalf of a nominee?
In case the answer to the above question is yes, you are required to known what is FBAR filing. Knowing about what is FBAR filing is mandatory to ensure that you don’t violate the US legislation. The IRS puts a hefty fine on eligible individuals who don’t submit the report.
An important thing to know about what is FBAR filing is that you should include information about every foreign fund in case the aggregate value is more than $10,000. You should mention the accounts even if they have a zero balance.
Under the IRS requirements, you need to know what is FBAR filing if you are a US permanent resident and have a financial interest in foreign account. US residents can include both individuals and firms including but not limited to the following.
- Estates and Trusts
- Limited liability companies
What Accounts Should be Reported?
An important question for persons and firms is what is FBAR filing requirements regarding foreign account reporting. The following accounts should be mentioned in the FBAR.
- Financial securities including mutual funds, options, future contracts, shares, bonds, etc.
- Foreign life insurance policies
- Running businesses abroad
- Real estate assets abroad
- Foreign bank accounts
- Mexican Administradoras de Fondos para el Retiro (AFORE)
- Canadian Registered Retirement Savings Plan (RRSP)
- Trust accounts
- Brokerage account
- Free Savings Account (TFSA)
- Currency account
- Mexican individual retirement accounts (Fondos para el Retiro)
The above financial assets should be disclosed in case the aggregate value exceeds $10,000. An important point regarding what is FBAR filing is that the aggregate value of the foreign financial account is important and not the individual value.
For instance, suppose that you own foreign assets that are valued $2,000, $3,000, and $4,000. In this situation, the aggregate value of the foreign assets is $9,000. So, you are not required to know about what is FBAR filing. On the other hand, if the value of the foreign assets amounted to $2,000, $3,000, and $6,000, you will have to know what is FBAR filing as now the net aggregate value is $11,000, which is more than the threshold amount.
One important you should know about what is FBAR filing is that there are certain exceptions regarding asset reporting. Keep in mind that shares of foreign firms that are issued in the national exchange should not be reported in FBAR. Moreover, in case you buy stocks from a broker or a middleman, you are not required to report the assets in the FBAR.
A hypothetical example will help clarify this point. Suppose that you buy the shares of a French company through a broker in the US. Are you required to report the asset in the FBAR in this situation? The answer is no. Why? Because you have bought the assets from a broker who resides in the US.
Now suppose that you have opened a bank account in Switzerland? Should this account be reported in the FBAR? The answer is yes. The bank account is located abroad. You have to report all the assets that hare held in a foreign country.
In contrast, you won’t need to report assets that are held in the US. The value of these assets is not included when calculating the aggregate value of the foreign assets. A person or entity should file FBAR if the following two conditions are met.
- The individual or firm holds legal title in financial assets held abroad
- An agent or attorney has been nominated by the owner to file FBAR
You should remember that an entity either a firm or an individual who owns more than 50 percent share in a business located in the US should report its foreign assets. Also, owners who own a foreign asset on behalf of a non-resident must report it in the FBAR. So, if Nonaka holds a foreign asset on behalf of his brother Takechi who is not a US-resident, then Nonaka has to report the asset in the FBAR. On the other hand, if both Nonaka and Takchi reside in the US, only one partner should report the asset in the FBAR.
What is the Difference Between a Signatory Authority and Financial Interest?
An interesting question regarding what is FBAR filing is what’s the difference between signatory authority and financial interest. You should know that you are not required to file FBAR if you have only signatory authority and no financial authority. In other words, if you have been given the authority to withdraw and access the funds held in a foreign financial institution, but you don’t have financial interest in the account, there is no need to file FBAR. You are required to file a FBAR only if you own the assets held abroad.
An example can be given of an officer of the large banking firm who have access to the funds. However, in this case the rightful owner of the assets is the bank. The officer has only signatory authority over the funds. In such a case, there is no need for the officer to file a FBAR. However, the firm has a financial interest in the foreign account and therefore must file FBAR.
Are there any Deadlines for Filing FBAR?
The IRS has set the deadline of April 15th for filing previous calendar year FBAR. So, in order to file FBAR for the 2016 calendar year, you must file the report by April 15th 2017. Note that the deadline is automatically extended to Oct. 15th. There is no need to submit an extension application. However, you cannot file an FBAR after this date unless you provide a specific reason for the delay.
Not filing the FBAR within the due date will result in penalty imposed by the IRS. The penalties for not filing the amount should be less of the following.
- Half of the current foreign account value
It’s important that you file the FBAR within the due date to avoid paying the penalty. Keep in mind that the penalty is imposed not just when you delay in submitting the application but also when you include incorrect information. To avoid paying hefty fines to the IRS, it’s important that you consult a professional tax advisor on how to properly prepare the FBAR.
How is FBAR Filed?
FBAR can be submitted electronically. The process of submitting the FBAR is quick and efficient. What’s more, you don’t have to pay any fees to the IRS for submitting the report. Reports that are submitted through the electronic filing system is secured by the Financial Crimes Enforcement Network (FinCEN). So, you don’t have to worry about breach of confidential information mentioned in the FBAR.
In order to file the FBAR, you must first register to get an ID and a password. This is required to correctly file the report. Once you have the password and the ID, you can log into the system to submit the report.
Keep in mind that your system must meet the minimum requirements for submission of the report.
Individuals who must file FBAR have to register with the FinCEN system in order to obtain an ID and a password. In order to correctly file the report, individuals who must file FBAR must meet certain system requirements. Not meeting the system requirements can prevent the proper filing of the report. Here are the minimum system requirements that should be met in order to file the FBAR.
- Windows Operating System (Mac is not supported at the moment)
- Internet connection
- Intel Pentium III or higher
- 200 MB free hard disk space
- 1 GB Ram
- Internet Browser (IE 8+, Firefox 19.0.1+, and Chrome 25+)
The above are the main system requirements for filing the FBAR. In addition, you should also have Adobe Acrobat reader installed on your PC. Also, if you are using a Firewall, make sure that the firewall allows access to port 443, which is required for SSLv3 encryption.
For more information about filing FBAR, it’s important that you contact a professional tax advisor. Moreover, you can find out additional information regarding what is FBAR filing requirement by calling the Regulatory Helpline by dialing (1) 703-905-395 if you are calling from abroad, and 800-949-2732 if calling from the US.
If you need help with your FBAR filing, please call us at 407-344-1012, or email us at email@example.com.