Who Must File FBAR?

Any person who resides in the US whether alien or resident must report foreign assets that are held abroad. The assets should be reported to the IRS by filing the relevant form. While filing FBAR is an important requirement, not many people are aware of who must file FBAR.

In this blog, we will explain what is FBAR, how to file FBAR, and also answer the question who must file FBAR.

Call us at 407-502-2400 or email us at [email protected]  for any FBAR questions, or needs you may have. 

FBAR: What is it?

FBAR is an abbreviation of Foreign Bank and Financial Account Report. The reports must be filed by every individual who owns financial assets that are worth more than $10,000. The report must be submitted to the IRS.

IRS is responsible for the collection of information regarding foreign accounts. The tax collection agency also examines any violation of the civil law. Moreover, IRS determines the penalties for not filing the tax form. Finally, the US tax authority is responsible for introducing rules for filling out the tax form.

People keep foreign accounts for a variety of reasons such as low fees, attractive investment potential, or personal convenience. Whatever the reason for maintaining a foreign account, they must report all assets held abroad to the IRS. The reporting requirement has been put in place to avoid tax evasion, money laundering, and other criminal activities.

FBAR requirement has been put in place to prevent individuals having foreign accounts in circumventing the US laws. Information that is present in the FBAR is used to monitor foreign fund usage. The US government assesses the report to find out whether the funds that are held in the foreign accounts are legit and does not violate any state or federal law. Moreover, it is also examined to expose any unreported income that is taxable by the IRS.

Exceptions Regarding Who Must File FBAR

A number of exceptions are there regarding who must file FBAR. Trust beneficiaries are exempted from filing FBAR. They need not report any financial asset held abroad to the IRS. Even if the value of the financial asset is more than $10,000, a firm is not required to submit FBAR.

Another exception regarding who must file FBAR is the US military bank account. An institution or person who holds foreign assets in a bank that is situated in any military installation of the US abroad need not file a FBAR.

International financial firms located in the US such as the IMF of which the US is a member country do not have to report foreign assets. Moreover, a US resident person who is a partner of another US resident person who owns foreign assets does not have to file a FBAR if the partner submits the report in a timely manner. This exception regarding who must file FBAR is valid only if the partner has submitted Form 114a: Record of Authorization to Electronically File FBAR.

One more exception regarding who must file FBAR is when the name of a person or institution is mentioned in a consolidated FBAR. The persons mentioned in the consolidated report need not submit the report individually. The institution mentioned in the consolidated report do not need to mention the foreign assets only if the firm that files the report on its behalf owns more than 50 percent of its shares. 

Another exception regarding who must file FBAR is a firm that maintains a foreign account also known as nostro account only to settle international transactions. In addition, any firm that is owned by the US government is also included in the exception list of who must file FBAR. The federal government owned firms that are exempted from filing FBAR include financial institutions such as Fannie Mae and Freddie Mac, utility companies like US postal service, and educational institutions such as universities, colleges, and schools. All of these are included in the list exception list of who must file FBAR.

In addition, qualified tax plan participants are also excepted from who must file FBAR. Qualified tax accounts are those that conform to the IRS requirements 401(a) and 403 (a and b).

Apart from the above, there are many other exceptions regarding who must file FBAR. One noteworthy exception relating to who must file FBAR include a person or an entity who have only signatory authority over funds held abroad. In other words, any person of the entity who does not have a financial interest regarding foreign funds needs not file a FBAR.

• One example is that of an employee or an officer who reports to the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration.
• Another example of exception regarding who must file FBAR include is that of an employee or an officer of the National Credit Union Administration and the Office of Thrift Supervision. These are not required to file FBAR relating to foreign funds that are held in a foreign investment company abroad that is recognized by the SEC.
• An officer or the employee who is employed in a firm that is registered with the SEC also do not have to file FBAR. The requirement holds in case the employee is employed in a company that is registered with the CFTC.
• Lastly, an officer or an employee of a company that owns foreign shares that are listed on the national exchange or the American depositary receipts are exempted from who must file FBAR.

What is the Deadline for Filing FBAR?

The deadline for filing FBAR is April 15th. Everyone who must file FBAR needs to file the report on the date. Keep in mind that you should file previously calendar year’s FBAR on the date. For example, the FBAR for the calendar year 2015 should be filed on April 15th, 2016, and so on.

Another important note regarding the deadline for filing FBAR is that it automatically extends to Oct. 15th. This means that if you are not able to file a report on April 15th, you will be allowed to file the report before Oct. 15th. Individuals who must file FBAR need not apply for an extension for submitting the report.

Procedure to file the FBAR

The most convenient option for filing a FBAR is electronically. Electronic filing of FBAR is fast and does not entail any cost. The filing system is secured and managed by Financial Crimes Enforcement Network (FinCEN).

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.

The minimum system requirement for filing the FBAR include the following.

Internet connection – Internet connection is necessary to file FBAR. The speed of the internet connection will determine how quickly the file is uploaded. In order to avoid long wait time, you should use a fast internet connection.

Hardware Requirements – Apart from an internet connection, your system should also meet minimum hardware requirements. This minimum system requirement for filing FBAR include:

• Intel Pentium III
• 1 GB Ram
• 200 MB free disk space
• Window operating platform (Apple platform is not supported)
• Firefox 19.0.1 or higher, Internet Explorer 8.0 or higher, Chrome 25 or higher.

Firewall Access – If using a Firewall, you should ensure that it gives access to port 443. Access to the port is required for SSLv3 encryption.

Adobe Reader – Adobe reader must be installed on the PC in order to submit FBAR via the e-filling system.

Types of Foreign Accounts that Should be Mentioned in FBAR

US citizens are required to report all types of account in the FBAR. All accounts that are held in a foreign bank or financial institution needs to be mentioned in the FBAR. Here is a list of financial assets that you should mention in the FBAR.

• Canadian Registered Retirement Savings Plan (RRSP)
• brokerage account
• trust accounts
• Mexican Administradoras de Fondos para el Retiro (AFORE)
• mutual fund
• future or option account
• bank accounts
• Free Savings Account (TFSA)
• commodity account
• currency account
• Mexican individual retirement accounts (Fondos para el Retiro)
• insurance policies

Remember that financial assets that are held in a branch of a foreign bank in the US need not be mentioned in the FBAR. Another thing that you should note regarding who must file FBAR is that if a US citizen invests in stocks of a foreign firm, the financial asset is not required to be mentioned in the FBAR. For instance, if you buy shares of a French company from an individual broker or a brokerage firm located in the US, you are not required to report the asset in the FBAR.

In addition, you should remember that you should report the financial assets only if the aggregate value of the asset exceeds $10,000. For example, suppose that you own three accounts worth $5,000, $6,000, and $7,000. Even though the individual accounts are worth less than $10,000. You still need to file the report as the aggregate value is more than $10,000. On the other hand, if you hold foreign accounts that are worth $1,000, $3,000, and $5,000, you do not need to file FBAR.

Individuals who must file FBAR should have a financial interest in the foreign asset. As mentioned earlier, an individual need not submit FBAR in case there is only signatory authority. A person is said to have a financial interest in a foreign asset if the following two conditions are satisfied.

• The person has a legal title of the foreign financial assets. This is irrespective of the fact whether the account is maintained for a non-resident.
• The person who owns the foreign assets has been nominated as an attorney, agent, or a nominee by the US resident

A simple example will help in understanding the requirements for filing FBAR. Suppose that a person who is a resident of the US has nominated his brother who is a non-resident to maintain the account. His brother has access to the amount. In such a situation, his brother is not required to file the FBAR even though he has access to the account. The US resident person has a financial interest in the account and should report the asset by filing a FBAR.

One more thing you should note regarding the filing of FBAR is that a person who owns 50 percent or more share, or has more than 50 percent voting power, in a foreign company must report the asset by filing the FBAR. This requirement is valid for both corporations and individuals.

What are the Penalties for Not Filing FBAR?

IRS imposes penalties for not filing FBAR to eligible persons. Moreover, petalites are imposed if the report contains erroneous information. The penalties imposed by the IRS should be less of half of the account value, or $124,588.

In order to avoid paying the hefty penalties, it’s essential that you contact a professional advisor to file the FBAR. A professional advisor will help you in filing the FBAR without any errors. This will ensure that you don’t have to pay any fine to the IRS.

When you have not filed the FBAR within the deadline, you must specify the reason. You can select from a list of options in the BSA e-filling system or mention your own by clicking on ‘Other’. The IRS will not impose a fine if you have submitted correct information and filed the report correctly with no errors.

Call us at 407-502-2400 or email us at [email protected]  for any FBAR questions, or needs you may have.