Who Should File FBAR?

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Foreign Bank and Financial Accounts Report (FBAR) is an important requirement that must be fulfilled by US citizens and aliens. However, not many people know who should file FBAR. The reason is that the rules are not so clear-cut when it comes to filing an FBAR.

In this article, we will inform what is FBAR, the deadline for filing FBAR, and also who should file FBAR.

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

About the History of FBAR

FBAR was introduced in the 1970s as “Currency and Foreign Transactions Reporting Act of 1970”, which is commonly known as Bank Secrecy Act. The Act had created financial obligations for reporting foreign currency accounts in order to prevent tax evasion, money laundering, and other criminal activities. The Act was amended at different points of time with the most recent changes made in 2015 that had moved the deadline for filing the FBAR from June 30 to April 15.

So, who should file FBAR?

FBAR is required to be filed by individuals and institutions that are subject to the jurisdiction of the US, and have a signaturatory or other authority over financial securities, banks, or other assets held abroad if the aggregate value of the assets is more than $10,000.

The value of the financial assets held in a foreign country can be determined from the account statement. Any non-dollar currency value must be converted using the Treasury Reporting Rates of Exchange. The value of the foreign asset is determined after assessing both the monetary and the non-monetary financial assets.

An example can help in elaborating who should file FBAR.

Suppose that a foreign account is situated in Japan and valued in Yen. The value of the financial asset is determined by converting the value of the account in Yen to US dollars. If the total value of the asset is more than $10,000, the individual should file FBAR.

Keep in mind that the aggregate value of the account is considered, and not the individual value of the accounts. This is important to know who should file FBAR. Suppose that you own three accounts that are valued at $3,000, $6,000, and $8,000. While the individual accounts are worth less than $10,000, you should still file an FBAR as the aggregate amount is $17,000, which exceeds the minimum threshold.

So, the answer to who should file FBAR is that anyone who holds a foreign account whose aggregate value is more than $10,000 should report this asset by filing FBAR. It does not matter whether the individual financial assets held in foreign countries are worth less than the minimum threshold amount. The aggregate amount is considered when finding out who should file FBAR.

Exceptions Regarding Who Should File FBAR

When it comes to who should file FBAR, there are certain exceptions. Here are some of the exceptions regarding who should file FBAR.

Trust Beneficiaries

One exception regarding who should file FBAR include trust benefices. They are not required to file FBAR to report foreign assets. This exception regarding who should file FBAR holds even if the value of the foreign asset exceeds $10,000.

US Military Bank Account

Another exception regarding who should file FBAR include the US military bank account. A person or institution that holds financial accounts in a bank located in a US military installation abroad does not have to file FBAR.

International Financial Institution

An International financial institution located in the US such as the IMF is not required to report financial assets held abroad. This is another exception regarding who should file FBAR.

Partner of Foreign Account Holder

The partner of a person who holds foreign account whose value is more than $10,000 is also an exception to who should file FBAR. The exception regrind who should file FBAR holds even if the partner is the joint owner of the account. As long as one partner files the FBAR in a timely manner and both of them have filed Form 114a: Record of Authorization to Electronically File FBAR, they won’t have to file FBAR separately.

Consolidated FBAR

Yet another exception regarding who should file FBAR is when an entity’s name is mentioned in a consolidated FBAR report. The person or the financial institution that files the FBAR on behalf of the entity should own more than 50 percent share on the other entity.

Correspondent Account

A correspondent account is generally maintained by a firm located abroad for settling banking transactions. Also known as nostro account, the owner of the account is not required to file FBAR.

Financial Firm owned by the US Government

Firms that are owned by the US government are included in the exception list of who should file FBAR. Any government owned school, college, university, financial institution, or other entity is included in this who should file FBAR exception list. The who should file FBAR exception list also contain employee retirement account and welfare benefit plan.

Approved Qualified Tax Plans

Another exception to who should file FBAR include participants of the approved tax plan. Qualified tax accounts include those that conform to the requirements of IRS regulations. Applicable sections of IRS include section 401(a), and 403 (a and b).

Other Exceptions regarding Who Should File FBAR

There are many other exceptions regarding who should file FBAR. An individual who does not have any financial interest in accounts held abroad despite having a signatory authority do not have to file FBAR.

For instance, an officer or an employee who reports to the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, or the National Credit Union Administration is not required to file FBAR.

Moreover, an officer or an employee of the Office of Thrift Supervision and the National Credit Union Administration are not required to file FBAR regarding foreign assets held abroad in an investment company that is recognized by the US Securities and Exchange Commission (SEC).

An employee or the officer who is employed in a SEC registered financial firm do not have to file FBAR. The same is the case if the employee is employed in a corporation that is registered with Commodity Futures Trading Commission (CFTC).

Another exception to filing FBAR is an employee or an officer of a company that owns shares that are listed on the national exchange. This exception also extends to employees and officers of a company that owns American depository receipts in approved securities.

When to File FBAR Report?

As mentioned previously, the deadline for filing FBAR report is April 15th of the year subsequent to the reporting of the calendar year. So, the deadline for reporting FBAR for the calendar year 2016 is April 15th, 2017, which is automatically extended to Oct. 15th. There is no need to request for an extension of the deadline.

How to File FBAR Report?

The FBAR report should be filed electronically through the FinCEN’s BSA E-Filing System. Along with the file, individuals are required to submit records relating to each account. The record should contain such information as account number, name and address of foreign financial institution where the assets are held, and the maximum value of each account denominated in dollar value.

The financial records regarding the foreign accounts must be retained for five years prior to the date on which the FBAR report was filed. Maintaining the records is an important requirement for FBAR.

If you have submitted the FBAR and want to make some changes, you have to fill out new FBAR form, and select Amend box. You have to provide the Prior Report BSA Identifier when you have selected the Amend box.

In addition, you will need to mention your prior report BSA Identifier after you have selected the Amend box. The Prior Report BSA Identifier is provided through the secure messaging feature of BSA E-filing or the email. In case, you do not have the identifier, you need to enter 00000000000000.

An important point to note is that the FBAR can be filed by the account holder or a third party preparer. The filer who is a third-party owner have to follow the same procedure described above in filing the report. However, the filer must be authorized to file on behalf of the owner by filing FinCEN Form 114a, FinCEN BSA E-Filing Signature Authorization Record.

What Types of Foreign Accounts Should be Reported in FBAR?

Any type of financial account that is maintained in a foreign country needs to be mentioned in the FBAR. This includes accounts that are held in an overseas branch of a US bank. Having said that, financial assets held in a foreign bank branch located in the US need not be reported in the FBAR.

Also, if a US citizen purchases shares of a foreign firm through a local financial firm or broker, the financial asset need not be reported in the FBAR. For example, if you buy shares of German bank from a brokerage company or individual broker located in New York, you are not required to mention it in the FBAR report.

Here are some of the financial assets that should be reported in the FBAR report.

  • brokerage account
  • bank accounts
  • mutual fund
  • trust accounts
  • currency account
  • future or option account
  • commodity account
  • insurance policies

In case the net value of the accounts listed above is more than $10,000, you will need the assets in the FBAR report. As mentioned previously, the exceptions are when you only have a signatory authority, but does not have a financial interest in the assets. Other types of foreign accounts that must be mentioned in the FBAR file include Free Savings Account (TFSA), Mexican Administradoras de Fondos para el Retiro (AFORE), Canadian Registered Retirement Savings Plan (RRSP), and Mexican individual retirement accounts (Fondos para el Retiro).

What is Meant by Financial Interest in Foreign Accounts?

Having a financial interest is a major requirement for FBAR reports. A person who only have the signatory interest does not need to mention financial assets held abroad. If a person satisfies the following two conditions, the person is said to have a financial interest in the foreign asset.

  1. The individual holds legal title of the financial asset irrespective of the fact that the account is maintained for the beneficiary of another person or holder, or a non-resident individual.
  2. The owner of the foreign assets serves as an agent, nominee, or attorney on behalf of a US resident.

Suppose that Akihito who is a US citizen holds an account in Japan. His brother Hatsuo maintains the account on his behalf. Hatsuo can access the amount on the authorization of Akihito. In this situation, Akihito has a financial interest in the foreign account and must report the account by filing FBAR report. In case his brother Hatsuo is also a US resident, he also is required to file FBAR report.

Another important thing that you should remember regarding the filing requirement is that any individual who owns 50 percent stock value, or has 50 percent voting power, in a company located abroad must report the asset by filing FBAR report. This applies to both individuals and corporations.

Conclusion

Filing FBAR is necessary for every US resident and alien and US registered firm that owns financial assets abroad whose aggregate value is more than $10,000. The individual or the firm must hold a financial interest in the foreign asset. The aim of the filing requirement is to prevent tax evasion and other criminal practices.

If you have difficulty in filing the FBAR, you can contact a tax expert for correct filing of the report. A lot of things need to be considered when filing the report. A tax professional will make sure that all the requirements are met so that you don’t have to face a hefty fine.

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

Robert AcevedoWho Should File FBAR?

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