Do You Know the Rules for Foreign Accounts Disclosure?

Do You Know the Rules for Foreign Accounts Disclosure?

If you are a U.S. person holding financial accounts abroad, understanding the foreign account disclosure rules is crucial to avoid serious penalties and maintain compliance with U.S. regulations. The cornerstone of this disclosure is the FBAR—Foreign Bank and Financial Accounts Report—an annual report required by the U.S. Treasury.

What is FBAR?

The FBAR (FinCEN Form 114) is a mandatory filing used to report your financial interest or signature authority over foreign accounts when the aggregate value exceeds $10,000 at any point during the calendar year. This requirement applies to U.S. citizens, residents, corporations, partnerships, trusts, and estates.

The FBAR is separate from your federal tax return and must be filed electronically through the Financial Crimes Enforcement Network (FinCEN).

Who Must File?

You must file an FBAR if:

• You are considered a U.S. person (which includes citizens, residents, and various types of legal entities).
• You have financial interest in or signature authority over foreign bank, securities, or other financial accounts.
• The combined total of these foreign accounts exceeds $10,000 during the year, even if just for one day.

What Accounts Are Included?

FBAR covers various foreign financial accounts including:

• Bank accounts (checking, savings)
• Securities and brokerage accounts
• Mutual funds and other pooled investment funds
• Certain retirement and pension accounts
• Insurance and annuity contracts with cash value
• Even accounts where you do not have ownership but have signature authority must be reported.

What Accounts Are Exempt?

Some accounts are exempt from FBAR reporting, such as:

• Correspondent or Nostro accounts
• Accounts owned by governmental entities or international financial institutions
• U.S. military banking facility accounts
• Certain Individual Retirement Accounts (IRAs) and retirement plans under specific conditions
• Deadlines and Penalties to Watch For
• The annual FBAR filing deadline is April 15, with an automatic extension to October 15 available.

Failing to file or filing incorrectly can trigger severe penalties:

• Non-willful violations: Up to $10,000 per violation.
• Willful violations: Up to 50% of the account value or $100,000, whichever is greater.
• Criminal penalties and prosecution in extreme cases.

FBAR vs FATCA: What's The Difference?

While both forms deal with foreign asset reporting, FBAR and FATCA (Form 8938) have different thresholds, filing mechanisms, and governing bodies. Many taxpayers with foreign assets must file both. FATCA form is filed with your tax return while FBAR is filed separately. 

FBAR rules can be complex and confusing, especially for first-timers or those with multiple foreign accounts. WhizHub Taxes in Lawrence Township, NJ, has experienced tax professionals.

Identify all reportable foreign accounts.

• Prepare and file FBAR accurately and punctually.
• Coordinate filings with related forms like FATCA.
• Help you stay compliant and avoid costly penalties.
• Provide expert guidance tailored to your unique international financial situation.