Travel Tax Week: US Report of Foreign Bank and Financial Accounts (FBAR)

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US tax day arrives this week, yet that is the start of the fun for American world travelers and expatriates.

A reader wrote: FBAR: blog about FBAR. What is FBAR? Why is there FBAR?  How does it affect expats? What do expats need to do?

Report of Foreign Bank and Financial Accounts (FBAR) is an annual filing process for US persons with financial interest in overseas accounts in aggregate over $10,000. the official eligibility criteria is:

Who Must File an FBAR

United States persons are required to file an FBAR if:

  1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:

  1. Certain foreign financial accounts jointly owned by spouses;
  2. United States persons included in a consolidated FBAR;
  3. Correspondent/nostro accounts;
  4. Foreign financial accounts owned by a governmental entity;
  5. Foreign financial accounts owned by an international financial institution;
  6. IRA owners and beneficiaries;
  7. Participants in and beneficiaries of tax-qualified retirement plans;
  8. Certain individuals with signature authority over but no financial interest in a foreign financial account;
  9. Trust beneficiaries; and
  10. Foreign financial accounts maintained on a United States military banking facility.

Look to the FBAR instructions to determine eligibility for an exception and to review exception requirements.

It is critical to note that this does not just apply to expatriates, rather it follows the domicile of bank accounts.

How to file?

Step 1: check that FBAR box on your tax filings:

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. Checking the appropriate block on FBAR-related federal tax return or information return questions (for example, on Schedule B of Form 1040, the “Other Information” section of Form 1041, Schedule B of Form 1065, and Schedule N of Form 1120) and filing the FBAR, satisfies the account holder’s reporting obligation.

This step is easy to overlook, especially if your taxes are prepared by a professional that may not be aware of your foreign accounts.

Step 2: file FBAR by June 30, but don’t file it with your taxes:

The FBAR is not filed with the filer’s federal income tax return. The granting, by the IRS, of an extension to file federal income tax returns does not extend the due date for filing an FBAR. You may not request an extension for filing the FBAR. The FBAR must be received by the IRS on or before June 30 of the year following the calendar year being reported. File by mailing the FBAR to:

United States Department of the Treasury
P.O. Box 32621
Detroit, MI 48232-0621.

The form is TD F 90-22.1. It is relatively straightforward as government forms go. It requires statement of the maximum value of each account during the calendar year so that people do not game the system.

This form is purely for reporting the identity and balances of accounts. Any taxes related to these accounts should be handling with your regular tax filings.

Tax year 2011 brings new convenience to filers with FinCEN’s (Financial Crimes Enforcement Network) press release, FinCEN Offers Optional Electronic Filing for FBAR Forms, announcing launch of FBAR e-filing, the BSA E-Filing System.

The press release states that the system has issues with joint accounts:

What if I file an FBAR with my spouse? Will I be able to E-File?

FinCEN’s current capability only allows for one digital signature. Although the FBAR instructions state that a spouse included as a joint owner, who does not file a separate FBAR, must also sign the FBAR in Item 44, the E-Filing process will not yet allow for both signatures on the same electronic form. So, to take advantage of E-Filing, each spouse must file a separate FBAR.

Interestingly it hints that paper filing may be phased out and tax software integration is in development:

Will paper forms still be accepted?

Paper FBAR forms will still be accepted until further notice is given by FinCEN.

Can tax preparation software be used to create and file an FBAR?

Not at this time, but FinCEN is working to create that convenience and capability.

A relief to filers is the acknowledgement feature, since there were no confirmations for paper filings.

Back to the reader question, why is there FBAR? The official focus is crime prevention:

FinCEN’s mission is to enhance U.S. national security, deter and detect criminal activity, and safeguard financial systems from abuse by promoting transparency in the U.S. and international financial systems.

But it would be foolish to have any discrepancy between tax filing and FBAR, after all, they all go to the Department of the Treasury.

Disclaimer: The Rapid Traveler is not a tax expert and is writing from personal experience. You should consult official IRS documents or qualified tax professionals. Any actions you take are your own responsibility.

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