X
X

Find Your Specialist

X

Contact Us

Go Back

Foreign Bank Account Reporting

If you have a financial interest in or signature authority over a foreign financial account, you may be required to file a report each year with the IRS. The FBAR report is required for bank accounts, brokerage accounts, mutual funds, trusts, or other types of foreign financial accounts with an aggregate value exceeding $10,000.

The report must be filed electronically on FinCEN Form 114, Report of Foreign Bank and Financial Accounts, more commonly known as the FBAR. The due date is June 30th, with no extension available and stiff penalties for noncompliance. Taxpayers simply must get this right and recent guidance by the IRS makes it a little easier.

FBAR Reference Guide

The new FBAR Reference Guide issued by the IRS clears up some of the more confusing rules relating to who must report, the accounts subject to reporting and the application of the $10,000 rule.

Who is a United States Person?

A “United States person” means:

• A citizen or resident of the United States;

• An entity created or organized in the United States or under the laws of the United States. The term “entity” includes but is not limited to, a corporation, partnership, and limited liability company;

• A trust formed under the laws of the United States; or

• An estate formed under the laws of the United States.

Disregarded Entities: Entities that are considered U.S. persons under the above rules may have to file an FBAR even if they are disregarded entities. In other words, the federal tax treatment of an entity does not affect the entity’s requirement to file an FBAR.

What is a Disregarded Entity?

A “disregarded entity” is a business entity that elects to have its entity status ignored for federal tax purposes. For example, an LLC may elect to be taxed as a sole proprietorship.

Foreign Financial Accounts

The Reference Guide clarifies that, in addition to bank accounts, mutual funds, insurance policies with a cash value and securities or options accounts must be reported. Other examples of covered accounts include:

• A Canadian Registered Retirement Savings Plan (RRSP)

• Canadian Tax-Free Savings Account (TFSA)

• Mexican individual retirement accounts (Fondos para el Retiro) and

• Mexican Administradoras de Fondos para el Retiro (AFORE).

Note that foreign hedge funds and private equity funds are not reportable on the FBAR.

Examples:

The IRS offers the following examples to illustrate when an account is considered a foreign account. Foreign accounts are only those maintained with financial institutions located outside of the U.S. or its territories.

■ An account maintained with a branch of a U.S. bank that is physically located in Germany is a foreign financial account.

■ An account maintained with a branch of a French bank that is physically located in Texas is not a foreign financial account.

■ Ed, a U.S. citizen, purchased securities of a French company through a securities broker located in New York. Ed is not required to report these securities because he purchased the securities through a financial institution located in the U.S.

How to Apply the $10,000 Threshold

First, the foreign accounts must exceed $10,000 to be reportable. That value is measured in U.S. currency. Second, that number applies in the aggregate, meaning that the total amount of all foreign account holdings must be factored into the calculation. Finally, reporting is required if the foreign accounts exceed the $10,000 at any time during the year, even for one day. Let’s look at some examples.

Examples:

■ Craig owns foreign financial accounts X, Y, and Z with maximum account values of $100, $12,000 and $3,000, respectively. Craig must file an FBAR because the aggregate value of the accounts is $15,100. Craig must report all three accounts even though two of them have values below $10,000.

■ Kristin owns foreign financial accounts A, B and C with account balances of $3,000, $1,000 and $8,000, respectively. Kristin is required to report accounts A, B and C because the aggregate value of the accounts is over $10,000. It does not matter that no single account exceeded $10,000.

■ Diane owns a foreign financial account with a maximum value of $15,000 but the account does not produce income. Diane is required to file an FBAR to report the account. The amount of income an account produces does not affect the filing requirement.

Example of Signatory Authority

If an individual has the authority to control the disposition of assets held in a foreign financial account by direct communication to the financial institution, that person has signatory authority for purposes of the FBAR.

■ Megan, a U.S. resident, has a power of attorney on her elderly parents’ accounts in Canada, but she has never exercised the power. Megan is required to file an FBAR if the power of attorney gives her signature authority over the financial accounts, even if she has not exercised the power.

Recordkeeping

Account holders subject to the FBAR rules should keep records of their accounts for five years from the due date of the report, which is June 30 of the year following the calendar year being reported. The records should contain the following information:

  • Name on each account.
  • Number or other designation of the account.
  • Name and address of the foreign institution where the account is maintained.
  • Type of account.
  • Maximum value of each account during the reporting period.

If you need help understand the tax regulations that apply to your unique situation, Frazier & Deeter’s tax experts can help. Contact us today.

Related Articles

Privacy Overview

When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

You can enable or disable our use of cookies per category.

When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

You can enable or disable our use of cookies per category.

Necessary Always Enabled

Essential cookies enable you to navigate our Site and use certain features, such as accessing secure areas of our Site and using other features of our service that require us to keep track of certain information as you navigate from page to page. Although some of these cookies are “required” to enable certain functionality, you can disable them in the browser, but doing so will limit your ability to use the features supported by such cookies.

Functionality cookies are cookies that support features of the Site, such as remembering your preferences.

These cookies collect information about how you use our Site, including which pages you go to most often and if they receive error messages from certain pages. These cookies are only used to improve how our Site functions and performs.

From time-to-time, we may engage third parties that track individuals who visit our Site. These third parties may track your use of the Site for purposes of providing us with certain marketing automation features (to help us improve our outreach to current and prospective clients) and providing you with targeted advertisements.