What is FBAR?
FBAR is a mandatory annual filing requirement for U.S. persons to disclose foreign financial accounts exceeding $10,000 in aggregate value to the Financial Crimes Enforcement Network (FinCEN).
As a point of clarification before we proceed, although FBAR refers to the reporting requirement itself, many people think of it as a form because it’s filed using FinCEN Form 114. This form is the tool used to fulfill the FBAR obligation, but FBAR itself represents the broader legal requirement to report foreign financial accounts. When people say "the FBAR," they’re often referring to the form, even though technically, FBAR isn’t a specific document—it’s the obligation to report.
Key Takeaways:
- The FBAR filing requirement applies to a wide range of individuals and entities, including U.S. citizens, residents (green card holders and those meeting the substantial presence test), and U.S.-formed entities like corporations and trusts.
- An FBAR must be filed by any “U.S. person” if the aggregate highest value of their foreign financial accounts exceeds $10,000 at any point during the calendar year.
- FBAR reports must be files annually via FinCEN Form 114, with an original filing date of April 15, which is automatically extendable to October 15.
Who Must File an FBAR?
The requirement to file an FBAR applies to any "U.S. person" who had a financial interest in, or signature authority or other authority over, one or more foreign financial accounts that, in the aggregate, exceeded $10,000 in value at any time during the calendar year. The term "U.S. person" is defined broadly for FBAR purposes and includes:
- U.S. Citizens: This includes individuals born in the United States, naturalized citizens, and, generally, individuals born abroad to at least one U.S. citizen parent. It doesn't matter where you live; if you're a U.S. citizen, you are subject to the FBAR requirements.
- U.S. Residents: This includes green card holders (regardless of their physical location), and individuals meeting the Substantial Presence Test:
- If you were physically present in the United States for a sufficient number of days during the current and preceding years, you might be considered a U.S. resident for tax and FBAR purposes. (This test requires a specific calculation based on days present in the U.S. over a three-year period.)
- Entities Created or Organized in the U.S.: This encompasses a wide range of entities formed under U.S. law, including corporations, partnerships, Limited Liability Companies (LLCs), trusts, estates, etc.
Important Considerations
- Maintaining U.S. citizenship, even if you hold citizenship in another country or reside abroad, triggers the FBAR filing requirement. U.S. citizens living overseas are still obligated to file.
- If a U.S. person jointly owns a foreign financial account with a non-U.S. person, the U.S. person is required to report the account on an FBAR if the aggregate value threshold is met.
- Even if you don't have a direct financial interest in an account, having a signatory or other authority over a foreign financial account can trigger an FBAR filing requirement. This often applies to employees who have control over company accounts.
- The filing requirement is triggered based on the combined highest value of all foreign financial accounts you have an interest in or authority over at any point during the calendar year. If this combined value exceeds $10,000, even briefly, you must file an FBAR. For example, if you have three accounts with maximum values of $4,000 each during the year, and their combined highest balances totaled $12,000 at one point, you must file an FBAR, even if no single account ever exceeded $10,000 individually.
What Accounts Need to Be Reported?
FBAR goes beyond traditional bank accounts. The following types of accounts must be disclosed:
- Brokerage accounts and mutual funds.
- Foreign pensions and insurance policies with cash values, like whole life insurance.
- Accounts used for trading commodity futures or options contracts held at a foreign institution
It’s important to note that "foreign" refers to accounts located outside the U.S. For expatriates, this includes accounts in their country of residence, even if they view them as “local” accounts.
Filing Requirements and Deadlines
The FBAR must be submitted electronically using FinCEN Form 114 (which is separate from your federal tax return). The filing process is straightforward:
- Access the BSA E-Filing System: This online portal is the only way to submit the form.
- Complete FinCEN Form 114: Provide details such as the account numbers, names of financial institutions, and the maximum values of your accounts during the year.
- Submit the Form Online: After submission, you’ll receive confirmation that your report was filed.
The FBAR filing deadline aligns with the U.S. tax deadline of April 15, but all filers receive an automatic extension to October 15. (In case you were wondering why there would be an April 15 deadline in the first place if there is an automatic extension until October 15, the reason is that it keeps the FBAR deadline aligned with the familiar tax return deadline, making it easier for people to remember and manage their filing obligations, especially since many individuals required to file an FBAR also file a tax return).
How FBAR Differs from FATCA
While FBAR and FATCA (Foreign Account Tax Compliance Act) both involve foreign financial reporting, they serve different purposes:
- Scope: FBAR applies to a broader range of individuals and entities, while FATCA primarily targets higher-income taxpayers and imposes obligations on foreign financial institutions (FFIs).
- Thresholds: The FBAR’s $10,000 threshold is fixed, whereas FATCA’s thresholds vary based on filing status and residency, starting at $50,000 for individuals living in the U.S.
- Forms: The FBAR is filed via FinCEN Form 114, while FATCA reporting occurs on IRS Form 8938.
- Account Types: FBAR focuses exclusively on foreign financial accounts. FATCA also includes non-account assets, such as interests in foreign businesses or real estate held through entities.
