Americans live abroad for a variety of reasons: career choices, family responsibilities, access to culture, and to be immersed in another language are just a few examples. However, if they are earning – and saving, or investing – money during their time overseas, they may have to file a Foreign Bank Account Report (FBAR).
An FBAR is required for United States citizens, residents, businesses and estates with financial interest in or authority over a foreign financial account or multiple accounts with balances that total more than $10,000 at any time during a calendar year. These accounts can be standard bank accounts, as well as brokerage accounts and mutual funds, although there are some foreign financial accounts that don’t need to be reported.
FBARs were created to prevent tax evasion, as a safeguard against stashing funds away in foreign bank accounts just to avoid paying taxes that are rightfully owed to the United States.
Record-keeping is essential, because the $10,000 threshold can be reached at any time in a year. The accounts don’t have to consistently have more than that amount to count, just one time during will do it, and the burden is on the taxpayer know if it does.
This requirement applies to any foreign accounts, including those in Canada and Mexico. If the accounts are located outside the 50 states and U.S. possessions and territories, they are considered to be foreign and qualify for FBAR filing.
The FBAR is due at the same as time as annual taxes, April 15th, although an extensions is automatically applied until October 15th. However, it is important to note that the FBAR form, FinCEN Form 114, isn’t filed with federal tax returns. Instead, it needs to be separately submitted electronically using the Financial Crimes Enforcement Network’s BSA E-Filing System. It is possible to file using a traditional paperwork system, but an exemption must be obtained.
The vast majority of FBAR filers will simply report the balance of their foreign bank accounts, but those with more complex financial situations may also need to report other sorts of accounts held at a foreign financial institution, like stock accounts; assets in a foreign branch of a U.S. financial institution, and foreign mutual funds, pensions or annuities.
Every year people come up with clever ways to sidestep paying taxes, but those who fail to file an FBAR are almost surely going to get caught, as foreign financial institutions are also sending information to the IRS, and penalties are steep.
According to the Internal Revenue Service, those found guilty of not filing an FBAR – whether willful or not – may be subject to stiff penalties.
Bottom line: U.S. citizens and residents living abroad, especially those who recently relocated, would be well advised to check in with their tax advisor, as they may have to file an FBAR as well as their US tax return.
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