What is the FBAR?
Foreign tax filing requirements in the United States have become an increasingly hot topic as the IRS is seeking to crack down on tax evasion. One of the ways that the IRS is looking to help reduce this tax evasion is through the Report of Foreign Bank and Financial Accounts (FBAR). The idea behind this foreign reporting form is to force those with money in foreign financial accounts to disclose those balances to U.S. authorities.
Who Needs to File an FBAR?
Per the IRS any “U.S. person, including citizen, resident, corporation, partnership, limited liability company, and trust and estate” with a foreign bank or financial account with a balance of $10,000 or more, at any point during the year, will have an FBAR filing requirement. This requirement will still be met even if an account has a greater than $10,000 balance for just a single day.
It is not necessary for you to own the financial account either, FBAR filing requirements apply to those who have signing authority over a bank account that may be held in another person’s name. Having signatory authority means that you can control the disposition of money, funds, or any other assets into and out of the account. This filing requirement can be met by having authority over an employer’s bank account as well.
If you are unsure of a potential FBAR filing requirement it would be a good idea to talk with your U.S. tax advisor about your individual situation.
When Does the FBAR Need to be Filed?
The FBAR is due on April 15th every year for the previous calendar year (the same due date for individual tax returns – Form 1040). The exception to this April 15th due date is for U.S. citizens living abroad who are granted an automatic 2-month extension to June 15th. Despite the tax deadline for 2020 changing to July 15th due to COVID-19, no change has been necessary for the FBAR. The FBAR can be extended for 6 months until October 15th to report the information of the previous calendar year. This extension is automatic and you do not need to request this 6-month extension. U.S. business entities also have this same filing schedule regardless of their tax year-end.
What Will You Need to Pay?
While it is an extremely important tax filing, there is no tax imposed or due with the filing of an FBAR. The failure to file a timely and accurate FBAR though will expose you to penalties, which are steep.
The filing penalties for the FBAR start at $10,000 but can escalate quickly, up to 50% of the value of accounts you fail to disclose, if the IRS determines that you are purposely avoided filing the FBAR. While there is a penalty abatement process to help remove penalties associated with the failure to file an FBAR we certainly recommend that these forms be filed timely and accurately from the moment you are required to file an FBAR.
What to do if I Haven’t Filed?
Depending on your individual circumstances you may be eligible for one of the IRS’s amnesty programs for those people who have not filed prior year FBAR’s even though they should have. The program is intended for those who may have not known about their obligation to file or lack of knowledge for whatever reason.
Getting caught up with FBAR filing requirements and staying compliant on a yearly basis is very important and the sooner you get ahead of any delinquent tax filings the better. Amnesty programs are only available to individuals who get ahead of the IRS, though. If the IRS notifies you of delinquent filings before you go through an amnesty program, you become disqualified to take advantage of the benefits and will face significantly higher penalties.
The chances of getting caught have risen over the past few years due to the introduction of FATCA which is a global effort asking for non-U.S. financial institutions to share information on those they believe to have connections with the United States with the U.S. Department of the Treasury. Getting caught through this new information sharing would place you at a significant disadvantage with the IRS when it comes to requesting any penalty abatement as they will assume you have been trying to hide the accounts.
Other Foreign Considerations
If you have an FBAR filing requirement you may also have other international tax filings including but not limited to:
- Corporate or Individual Income Taxes
- Form 5471
- Form 5472
- Form 3520
- Payroll Taxes
- Sales Tax
- Property Tax
- Miscellaneous local requirements
We Can Help
Aprio Cloud can help work with you to determine any and all U.S. tax filing requirements you may have including the FBAR and all other forms listed above. As with all U.S. tax matters, everyone’s circumstances are unique and we would be happy to discuss how we can help you stay on top of all compliance matters and plan to help minimize your global tax burden.