American Expats: File Your FBARs By October 15 (Updated for 2020)

FinCEN Clarifies FBAR Extensions ( Learn More )

If you’re an Amer­i­can expat with a for­eign bank account, you may have spe­cial report­ing oblig­a­tions with the U.S. Depart­ment of Trea­sury. This report­ing oblig­a­tion is focus­ing on the dis­clo­sure of your for­eign – non‑U.S. finan­cial assets and bank accounts, rather than on tax lia­bil­i­ty. How­ev­er, the IRS can ques­tion the legit­i­mate source of funds in your non‑U.S. bank accounts, as well as whether such funds have been sub­ject to tax. Report of For­eign Bank and Finan­cial Accounts (FBAR) is filed with the U.S. Trea­sury elec­tron­i­cal­ly on Form Fin­CEN 114. There is an addi­tion­al report­ing require­ment for U.S. expats on Form 8938, State­ment of Spec­i­fied For­eign Finan­cial Assets, com­mon­ly referred to as “FATCA Form.” Form 8938 is required to be filed with the Inter­nal Rev­enue Ser­vice (IRS) and attached to the individual’s U.S. income tax return. Com­pared to FBAR that is filed on a stand­alone basis, Form 8938 is not required to be filed with the IRS if you do not meet the U.S. income tax fil­ing require­ment – Form 1040. In this arti­cle, we cov­er what you need to know pri­or to fil­ing your FBAR, impor­tant dead­lines, and who is required to file FBAR.  

Overview of FBAR

Whether you reside in the Unit­ed States or abroad, U.S. per­sons (includ­ing U.S. cit­i­zens, Green card hold­ers, and U.S. res­i­dents) may be sub­ject to the FBAR report­ing if they own, are a nom­i­nee, or oth­er­wise con­trol or have a finan­cial inter­est in a non‑U.S. account. This includes indi­vid­u­als who have sig­na­to­ry author­i­ty over applic­a­ble non‑U.S. bank accounts and joint accounts, even if the oth­er account hold­er is a non‑U.S. per­son. Impor­tant­ly, whether or not the account gen­er­at­ed tax­able income does not affect its sta­tus as a “for­eign finan­cial account” for FBAR pur­pos­es. FBAR’s gen­er­al fil­ing dead­line is April 15. How­ev­er, there is cur­rent­ly an auto­mat­ic exten­sion until Octo­ber 15. No affir­ma­tive action is required by the tax­pay­er to be eli­gi­ble for this exten­sion – it applies by the oper­a­tion of law. Tax­pay­ers will be well advised to con­firm every year whether the auto­mat­ic exten­sion is still in effect. The April 15 tax fil­ing dead­line coin­cides with the gen­er­al dead­line for fil­ing one’s U.S. tax return. Due to COVID-19, the IRS has extend­ed the April 15 tax fil­ing and pay­ment dead­line to July 15, 2020, for the 2019 tax year. The U.S. Trea­sury did not extend the April 15 dead­line for FBAR fil­ing, but, as dis­cussed above, the auto­mat­ic exten­sion effec­tive­ly moves that dead­line to Octo­ber 15. If you have non‑U.S. bank accounts or finan­cial assets, you must com­plete Sched­ule B, Part III on your tax return, even if you do not have inter­est income or are not required to file an FBAR (see the fil­ing thresh­olds below). In addi­tion, if you meet cer­tain amount thresh­olds, you may be required to file Form 8938 in addi­tion to your FBAR. U.S. cit­i­zens and Green card hold­ers are taxed in the Unit­ed States on their world­wide income, and this includes income stem­ming from for­eign trusts, for­eign banks and secu­ri­ties accounts, which typ­i­cal­ly is com­prised of pas­sive income (such as inter­est or div­i­dend income).  

Who Must File an FBAR

FBAR is required to be filed by a U.S. per­son who (U.S. per­son gen­er­al­ly includes U.S. cit­i­zens, long-term res­i­dents – Green card hold­ers, U.S. res­i­dents, cor­po­ra­tions, part­ner­ships, trusts and estates):

• Has a finan­cial or sig­na­to­ry inter­est in or oth­er author­i­ty over any non‑U.S. finan­cial account;
• The aggre­gate val­ue of for­eign finan­cial accounts exceeds US $10,000 dur­ing the cal­en­dar year.

Note that if you meet the US $10,000 thresh­old with respect to all of your non‑U.S. accounts, you must dis­close even those accounts that have zero val­ue or bal­ance.

Why Would you File FBAR?

First and fore­most, you are required to file FBAR if you are sub­ject to FBAR fil­ing because it is the law. Sec­ond, non­com­pli­ance with FBAR dis­clo­sure and fil­ing oblig­a­tions, as well as record­keep­ing require­ments may lead to sub­stan­tial civ­il or even crim­i­nal penal­ties. The max­i­mum civ­il penal­ties applic­a­ble for FBAR vio­la­tions for the 2019 tax year are as fol­lows:

• Will­ful vio­la­tions — US $129,210 (this amount is indexed for infla­tion) or 50 per­cent of the high­est bal­ance in the account at the time of the vio­la­tion, whichev­er is greater.
• Non-will­ful vio­la­tions – US $12,921 per vio­la­tion (the IRS has been apply­ing this penal­ty more lib­er­al­ly).
• No penal­ty is imposed if the fail­ure to file (or file time­ly) FBAR was due to non-will­ful con­duct and rea­son­able cause. The rea­son­able cause is a high stan­dard to meet and the igno­rance of the law alone is gen­er­al­ly not suf­fi­cient to estab­lish rea­son­able cause.

You should talk to your U.S. tax advi­sor to deter­mine if any of the above penal­ties may apply to your sit­u­a­tion and how, if applic­a­ble, they may be mit­i­gat­ed.  

How To Go About Filing FBAR

The good news is that com­plet­ing FBARs is not over­ly com­pli­cat­ed. You should be able to do it your­self. In fact, unless you’d rather pay the tax return pre­par­er for due to the val­ue of your time or if you want to make sure that the fil­ing is done right, you can fill out and file FBARs on your own. In some cas­es, tax return pre­par­ers may agree to review your draft FBAR, if such a review is impor­tant to you – it may cost the same or be less expen­sive, depend­ing on each tax return preparer’s poli­cies. Even if you file your own FBARs, you would be required to pro­vide the account infor­ma­tion to your U.S. tax advi­sor so that they can deter­mine whether Form 8938 would be required as well. Note that there are cer­tain non‑U.S. finan­cial assets that are report­ed on Form 8938, while they are exclud­ed from report­ing on FBAR. Depend­ing on your sce­nario, you would need to make a deci­sion as to whether you would want every­thing done in one place or split the job between your tax return pre­par­er and your­selves. Although very lim­it­ed exemp­tions exist (and they require con­tact­ing the Fin­CEN helpline and obtain­ing approval for paper fil­ing), FBARs must be filed elec­tron­i­cal­ly with the Finan­cial Crimes Enforce­ment Network’s BSA E‑Filing inter­face. Mar­ried tax­pay­ers can, in very lim­it­ed sit­u­a­tions, file a joint FBAR, if the account is owned joint­ly with their spouse and if only one or none of the two par­ties have a sep­a­rate account. In all oth­er cir­cum­stances, each spouse must sub­mit their own FBAR.  

Records to Be Maintained

For every account sub­ject to dis­clo­sure on FBAR, you must gen­er­al­ly main­tain the fol­low­ing records for at least five years from the due date of the FBAR fil­ing:

• Name on the account;
• Account num­ber;
• Name and address of the for­eign finan­cial insti­tu­tion where the account is held;
• Type of account; and
• The max­i­mum val­ue dur­ing the year.

There are no spec­i­fi­ca­tions as to the type of doc­u­ment need­ed to main­tain this infor­ma­tion, it can be a bank state­ment or a copy of a filed FBAR as long as all the infor­ma­tion is detailed there­in.

What to Do if You Failed to File Your FBAR Timely or Haven’t Filed FBAR at All?

If you failed to file FBAR when you were required to do so, you can still become com­pli­ant by using one of the IRS amnesty pro­grams. If FBAR is the only dis­clo­sure you failed to make on time (or make it at all) and pro­vid­ed that you did not delib­er­ate­ly failed to com­ply with the FBAR report­ing oblig­a­tions, you should be able to use the IRS Delin­quent FBAR Sub­mis­sion Pro­ce­dures to become com­pli­ant. There are cer­tain require­ments that you need to meet, but if you do qual­i­fy, the IRS typ­i­cal­ly would not assess FBAR penal­ties. In you also need to amend your U.S. tax returns, along with fil­ing FBARs, and, once again, pro­vid­ed that you did not will­ful­ly vio­lat­ed the law, you may qual­i­fy for the IRS Stream­lined Fil­ing Com­pli­ance Pro­ce­dures. No penal­ty applies to tax­pay­ers who reside out­side the Unit­ed States and met the non-res­i­den­cy test – they can use IRS Stream­lined For­eign Off­shore Pro­ce­dures. For tax­pay­ers resid­ing in the Unit­ed States, a 5 per­cent mis­cel­la­neous off­shore penal­ty may apply, but oth­er­wise oth­er penal­ties would be for­giv­en – they can use the IRS Stream­lined Domes­tic Off­shore Pro­ce­dures. Both these IRS amnesty pro­grams con­tain var­i­ous detailed require­ments and you should review them care­ful­ly to make absolute­ly sure you qual­i­fy for the pro­vid­ed relief. If you are con­sid­er­ing renounc­ing your U.S. cit­i­zen­ship and have not been tax and FBAR com­pli­ant, you can use IRS Relief For Cer­tain For­mer Cit­i­zens. Although FBARs are tech­ni­cal­ly not required to be filed under that IRS pro­ce­dure, the IRS rec­om­mends doing so. Again, there are detailed require­ments to be eli­gi­ble for this IRS pro­gram, includ­ing non-will­ful con­duct. Final­ly, if you believe there is a pos­si­bil­i­ty of poten­tial crim­i­nal pros­e­cu­tion and/or you may have will­ful­ly vio­lat­ed the law, you can become com­pli­ant by using the IRS Off­shore Vol­un­tary Dis­clo­sure prac­tice. This pro­gram comes with civ­il penal­ties, but would pro­tect you, pro­vid­ed you meet applic­a­ble require­ments, from poten­tial crim­i­nal pros­e­cu­tion. If you failed to file FBAR or did not file it time­ly, or if you failed to include cer­tain bank accounts on your pre­vi­ous­ly filed FBAR, talk to your U.S. tax advi­sor and dis­cuss your options. You should become com­pli­ant as soon as pos­si­ble, while the IRS still has the amnesty pro­grams dis­cussed above open. These pro­grams can be closed any time, with or with­out sig­nif­i­cant notice. As you work on your U.S. tax­es, make sure you gath­er the infor­ma­tion nec­es­sary to file your FBAR as well. Get start­ed today to avoid pro­cess­ing delays. Do not pro­cras­ti­nate. Our team of qual­i­fied inter­na­tion­al U.S. tax advi­sors is knowl­edge­able about com­plex and dynam­ic U.S. inter­na­tion­al tax rules. We can help you in fil­ing your FBARs in an accu­rate and time­ly man­ner to help you stay com­pli­ant. To beat the fling rush, we strong­ly urge you to not wait until the eleventh hour.