Who Has to File FBAR?

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More of US citizens today are either living abroad or have businesses in other countries. The number of foreign accounts held by US citizens outside the US is also increasing every single passing day as they continue to grow their businesses. The foreign accounts may be kept for banking, pension or investment purpose. However, as a law abiding citizen of the US, one needs to report their foreign accounts to the IRS. FBAR is a special form that needs to be filed with the Financial Crimes Enforcement Network of the federal government. In case of being unable to fill and file this form, you can be subjected to heavy penalties by the IRS.

If you need help filing your FBAR report call us at 407-344-1012, or email us at info@freedomtaxfl.com.

The American tax law abides all the US citizens residing in the US and having financial interest or a signatory authority over any foreign financial account to file their FBAR. They need to report their foreign financial account to the Department of Treasury on an annual basis and it can be easily done through electronic filing. If you have a foreign bank account, you will be liable to file both the FinCEN and the FBAR. The same needs to be done in case you have a foreign trust or a mutual fund outside the US. Unfortunately, not many people in the US are aware of who has to file FBAR and most of the times fail to file it which leads to penalties. It is, therefore, important that as a US citizen having a financial interest outside the country, you know what is FBAR, who has to file FBAR, how to file FBAR and what are the penalties in case you fail to file it on time.

Here is all the information you need to have about FBAR.

What is FBAR?

The Bank Secrecy Act, BSA, was introduced in the US in 1970. It was introduced to take preventive measures to ensure there is no money laundering whatsoever. Under the BSA, US citizens having a financial interest over foreign accounts that have an aggregate value of more than $10,000, had to file a FinCEN form No: 114. The same was the case for the US citizens having a signatory authority over any foreign accounts. This is the FBAR form. FBAR stands for Report of Foreign Bank and Financial Accounts.

Previously, it was the Treasure Form TD F 90-22.1 that was to be filled by US citizens having foreign accounts or having a financial interest in any account exceeding $10,000. However, this was changed in April 2003, with the introduction of the FinCEN, the Financial Crimes and Enforcement Network, which was delegated the authority to collect and disseminate information about foreign accounts and the FBAR filing to the Internal Service Revenue, IRS.

Currently, the IRS has the following responsibilities when it comes to foreign bank accounts and FBAR filing.

  • Collecting information and data about all US citizens who have a foreign bank account
  • Ensuring that the civil law is not violated in any case
  • Determining and collecting penalties that may arise in case of non-filing of the FBAR
  • Making and implementing laws related to the FBAR filing

Many people maintain foreign accounts for a variety of reasons which include but are not limited to convenience, low fees and ease of access. If you are a citizen of the US and have a foreign account anywhere in the world, it is mandatory for you to file the FBAR for tax reporting purposes in the US. Filing of the FBAR allows the federal government of the US to keep a record and to ensure that none of the US citizens are circumventing the US tax laws. It is also necessary to make sure that no US citizen is involved in money laundering and are not using any illegal means while maintaining their foreign accounts. The FBAR is also used as a means of monitoring where the foreign funds are used by the account holder and are necessary to ensure that they are not used for any illegal purposes. The IRS also uses the FBAR to determine the unreported income for tax purposes.

Who has to File FBAR?

If you are not sure who has to file FBAR and whether or not you fall into the category, here are some simple questions to ask that will make it easy for you to understand the requirements.

  1. Are you are US citizen and live in the US?
  2. Are you green card holder or a holder of the H1 or any other kind of visa?
  3. Do you have a foreign account or an authority over a foreign bank account?
  4. Do you have more than $10,000 in the foreign bank account at any moment?

If you answered yes to these questions, then you fall into the category of the US citizens who has to file FBAR. It is necessary to include all the information about all foreign bank accounts you have even if they have zero or negative balance in them.

Under the IRS, you need to file the FBAR if you are a US citizen having foreign bank accounts or signatory authority over any. By a US citizen, the IRS means all the citizens, residents and entities of the US including but not limited to

  • Corporations
  • Partnerships
  • Limited liability companies
  • Estates and
  • Trusts

that are created and organized in the US under the US laws.

What Accounts need to be Disclosed?

Every US citizen who has to file FBAR also needs to disclose information about the following accounts.

  • Financial, bank and securities accounts
  • Accounts held in mutual funds
  • Accounts having an equity interest of a US citizen in the fund
  • A US person having a foreign life insurance
  • A US person having annuities that have a cash surrender value
  • A US person having a foreign online gambling account

Bonds, notes, stock certificates and unsecured loans owned individually by a US person do not form a part of the accounts.

Under the Foreign Bank Account Report, you are mandated to report and file if you hit the $10,000 mark for even a minute or a day. This threshold amount is also an aggregate amount, which means that this will be the total of the entire amount you have in foreign bank accounts if you have multiple ones. The filing requirement will be triggered by the sum of the balance of all foreign accounts you have. Thus, you cannot avoid filing an FBAR if you keep $5000 in one foreign bank account and $6000 in another. This will give you a better idea to know who has to file FBAR.

Signing Authority over Foreign Accounts

Under the Foreign Bank Account Report, you also need to file if you only have a signing authority in a foreign bank account. It also does not necessarily have to be your account to file the FBAR. If you own control over the disposition of funds, money or any other asset held in a foreign bank account, you are bound by the federal law of the US to file the FBAR. Thus, if you are a US person and have been given the authority to open or close, deposit or withdraw money to and from a foreign bank account, no matter whose name the account us in, you need to file FBAR if you wish to avoid getting into any legal penalties.

What are the Exceptions?

Here are some of the exceptions when it comes to who has to file FBAR under the IRS.

  • Nostro/correspondent accounts
  • Foreign financial accounts that are held jointly by spouses
  • Financial accounts owned by the government
  • Senior beneficiaries and owners of the IRA
  • Tax-qualified participants and beneficiaries of retirement plans
  • US trust beneficiaries who are filing FBAR on behalf of a trust
  • Certain individuals with a signature authority but no financial interest in the foreign account
  • Senior persons included in the consolidated FBAR report
  • Foreign financial accounts owned by international financial institutions
  • Financial accounts in a foreign country maintained inside a banking facility of the US Military

The Substantial Presence Test

Here are the conditions of passing the substantial presence test that makes you legible to file the FBAR.

If you are present in the US physically for

  • At least 31 days of the current year
  • 183 days in the current and the two years before it.

This number of 183 includes the following

  • All days of the current year when you are in the US
  • 1/3 of the days you were physically present in the US the year before the current one
  • 1/6 of the days you were present in the US physically two years before the current year

You qualify the substantial presence test if you have been on a non-exempt status in the US for more than 6 months of the tax year under consideration and you will be treated as a US person. Here is what physical presence means.

  • Being present in any of the 50 states of the US
  • Being present in US territorial waters spread over 12 nautical miles away from the coast line
  • Being present in the seabed or subsoil of the submarine areas located right next to the territorial waters. It is the right of the US under the international law to explore and use the resources present in these areas. The submarine areas are spread over 200 nautical miles from the land areas.

The Green Card Test

Another way to determine who has to file FBAR is to determine where you fit under the Green Card Test. Under the Green Card Test, you qualify as a US person if you have spent even a single day in the US as a lawful permanent citizen during the present year or the year under discussion. By the term lawful permanent resident, it means you have a green card.

Account Types that Need to File FBAR

Here are the types of accounts who have to file FBAR under the federal law.

  • All kinds and types of foreign bank accounts
  • Insurance policies having a cash value
  • Time deposit, deposit, demand and securities accounts
  • Annuity policies having a cash value
  • Commodity options or futures accounts
  • Comparable pooled fund or shares in mutual fund
  • Jointly owned foreign accounts
  • Pension funds of some kinds

What is meant by having a Financial Interest in an Account?

You qualify as a person who has to file FBAR if you have a financial interest in a foreign account. Here is what is meant by having a financial interest.

  • You own the account
  • You own the account but someone else is acting on your behalf as the owner
  • You own 50% of the shares in an account owned by a corporation
  • You have at least 50% interest in the profits or capital of the account owned in partnership
  • You are the trust grantor or have an ownership interest in the account
  • You are the owner of at least 50% of the total value of assets or profits of an account entity or have a voting power of the same level.

What are the Penalties for Not Filing FBAR?

Failing to file FBAR because of a non-willful reason or because you did not know you qualify as a person who has to file FBAR, you may be subjected to a penalty of up to $10,000. This penalty will be for each instance you failed to comply which means you will have to pay a sum of $10,000 for each instance you failed to file FBAR.

In case you willfully did not file your FBAR, you will be subjected to a penalty of 50% or more of the amount of the total balance you have in your foreign account. You will also be imposed a fine of $100,000 by the IRS in case of willful non-filing. This is in addition to the penalty that will be levied on you for each year of no-filing. It is important to keep in mind that not filing the FBAR when you qualify as a person who has to file FBAR is a criminal offence. You may be subjected to criminal proceedings by the IRS if you are found to be not filing FBAR.

Conclusion

If you are a US person (see the definition above), it is compulsory for you to file your FBAR. If you are not sure whether or not you qualify as a person who has to file FBAR, you can always take the opinion and help of experts. It is important to keep in mind that not filing the FBAR is a criminal offence and if you wish to avoid getting into any legal trouble with the IRS, it is necessary that you file your FBAR on time and in the right way. FBAR is a tool used b the federal government to put an end to money laundering and to ensure that the money held by US people in foreign accounts is not used for any illegal purposes. If you have not been filing FBAR until now, it is best to consult a legal attorney to know if you violation can be treated as a non-willful act or not. Under the attorney-client privilege, your personal communication is kept confidential between you and the client and prevents it to be used against you in case the violation leads to criminal proceedings.

If you are still not sure who has to file FBAR, how to file FBAR or even how to fill up the form, seek professional help. Tax experts have dealt in a number of these cases before and will be able to address all your concerns. They will also be able to ascertain whether you have to file FBAR and what if you have not been able to file FBAR when it was due. They will also offer their assistance and expertise in case you have to go through criminal proceedings. Since they have experience of handling hundreds of these cases before as well, they are aware of how things work.

It is important you know if you are the one who has to file FBAR or not. Make sure you file timely to avoid getting into any legal trouble and to avoid any criminal proceedings and hefty fines for negligence and non-filing.

If you need help filing your FBAR report call us at 407-344-1012, or email us at info@freedomtaxfl.com.

Robert AcevedoWho Has to File FBAR?

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