Having a foreign bank account is not, by itself, unlawful. The problem is failing to meet the reporting and tax obligations that apply to it. Those obligations can overlap, and filing one form does not necessarily satisfy the others. Start by identifying every account, the relevant years, and your relationship to each account.
1. What an FBAR is
The Report of Foreign Bank and Financial Accounts, or FBAR, is FinCEN Form 114. It is generally filed electronically with the Financial Crimes Enforcement Network, not attached to your federal income-tax return. It reports certain foreign financial accounts; it does not calculate or pay income tax.
2. Who may need to file
A U.S. person may have an FBAR obligation if they have a financial interest in, or signature authority over, foreign financial accounts. U.S. persons include certain individuals and entities, and exceptions can apply. An account can require reporting even if it earns no income. Joint ownership and authority over an employer's account deserve particular attention.
3. The $10,000 aggregate threshold
The general filing threshold is met when the aggregate value of reportable foreign financial accounts exceeds $10,000 at any time during the calendar year. This is not a separate $10,000 allowance for each account. Review the accounts together and use the official instructions for determining maximum values and converting foreign currency.
4. Filing deadlines and records
The annual FBAR is due April 15 following the calendar year being reported. Filers who miss April 15 receive an automatic extension to October 15 without submitting an extension request. Check official guidance for any applicable relief. Gather account ownership details, account numbers, institution names and addresses, and maximum account values; follow the record-retention requirements in the current instructions.
5. Other offshore reporting may still apply
Foreign-account income may need to appear on a federal tax return. Form 8938 and other international information returns may also apply, depending on the assets, ownership, residence, and other facts. FBAR and Form 8938 have different requirements: filing one does not replace the other. Foreign corporations, trusts, gifts, and other arrangements can create additional reporting obligations.
6. If earlier reports were missed
Do not assume that filing late forms or amended returns is the right solution in every case. Potential penalties and available correction procedures depend on the facts, including whether conduct was willful and whether the government has already made contact. Have an attorney evaluate the history and current procedures before choosing a disclosure approach. There is no universal penalty-free route.
Before addressing an offshore reporting issue
- List all potentially reportable foreign accounts, including jointly held accounts and signature-authority accounts.
- Gather annual statements and copies of prior tax returns and FBARs.
- Check reporting for each year separately, rather than looking only at today's balance.
- Keep any government letters and note their deadlines.
- Discuss missing filings with counsel before making statements about willfulness or choosing a disclosure procedure.
Get help from someone who has seen it from the inside
McCarthy Tax Law, P.A. helps taxpayers assess foreign-account reporting and related tax concerns. Bernie McCarthy brings his experience as a former IRS Revenue Agent and IRS attorney to the review of reporting obligations and potential disputes, from Melbourne Beach for taxpayers nationwide. Learn more about our fbar & offshore compliance services.
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This article provides general information, not legal advice for your situation.