FBAR: Report of Foreign Bank and Financial Accounts

FBAR Essential Guide: Who, What, When, Where, Why and How to.
FinCEN Form 114. Report of Foreign Bank and Financial Accounts

FBAR: What is it?

FBAR stands for Report of Foreign Bank and Financial Accounts. It’s an annual report required by the Bank Secrecy Act (BSA) to disclose certain foreign financial accounts to the U.S. Department of Treasury. The form actual name is FinCEN Form 114.

Who must file?

U.S. persons must file an FBAR if they have a financial interest in or signature authority over foreign financial accounts, and the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

What is a Foreign Financial Account?💴💵

A foreign financial account is a financial account located outside of the United States. For example, an account maintained with a branch of a United States bank that is physically located outside of the United States is a foreign financial account. An account maintained with a branch of a foreign bank that is physically located in the United States is not a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a foreign financial account for this form’s purposes.

What is Financial Interest.?💶💷

A United States person has a financial interest in a foreign financial account for which:

✅  1. the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or

✅  2. the owner of record or holder of legal title is one of the following:

✔️ a. An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;

✔️ b. A corporation in which the United States person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock or (ii) more than 50 percent of the voting power of all shares of stock;

✔️ c. A partnership in which the United States person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or (ii) an interest in more than 50 percent of the partnership capital;

✔️ d. A trust of which the United States person: (i) is the trust grantor and (ii) has an ownership interest in the trust for United States federal tax purposes. See 26 U.S.C. sections 671-679 to determine if a grantor has an ownership interest in a trust;

✔️ e. A trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year; or

✔️ f. Any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

How about…“Person”? 

A person means an individual (including a minor child) and legal entities including, but not limited to, a limited liability company, corporation, partnership, trust, and estate.

What is “Signature Authority”? 📝✍🏻

Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account. See Exceptions, Signature Authority.

FBAR Filing Requirement for Virtual Currency? ₿

Ref: FinCEN Notice 2020-2 : Currently, the Report of Foreign Bank and Financial Accounts (FBAR) regulations do not define a foreign account holding virtual currency as a type of reportable account. (See 31 CFR 1010.350(c)). For that reason, at this time, a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency). However, FinCEN intends to propose to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account under 31 CFR 1010.350.

🕒 When to file?

FBAR is due annually on April 15 following the calendar year to be reported. An automatic extension until October 15 is allowed.
This extension doesn’t require a formal request. Natural disasters can lead to further extensions.

🤔 How to File?

FBAR must be filed electronically through FinCEN’s BSA E-Filing System. Paper filing requires an exemption from e-filing and authorization to file on someone’s behalf using FinCEN Report 114a. More info: https://www.fincen.gov/how-do-i-file-fbar

📚 Record-keeping Requirements?

For each account reported, records must be kept, including account details, the foreign bank’s information, and maximum value during the year. These records should be retained for five years.

⚖️ FBAR Penalties?

Failure to comply with this form reporting and record-keeping can result in civil monetary penalties and criminal penalties, depending on the circumstances.

FinCEN may bring an enforcement action for violations of the reporting, record-keeping, or other requirements of the BSA.
Here are some examples: Enforcement Actions

Those who must file an FBAR and fail to timely file a complete and correct FBAR may be subject to civil monetary penalties, criminal penalties, or both. When a U.S. person learns they should have filed an FBAR for an earlier year, they should electronically file the late FBAR using the BSA E-Filing System. They can enter the calendar year reported, including past years, on the online FinCEN Form 114. They “explain a late filing” or select “Other” to enter up to 750-characters within a text box to explain the late filing or indicate whether the filing is made in conjunction with an IRS compliance option. If they properly report the foreign financial account on a late-filed FBAR, and the IRS determines the FBAR violation was due to reasonable cause, no penalty will be imposed. For other guidance on circumstances, such as natural disasters, that may prevent timely FBAR filing, see FinCEN guidance, FIN-2013-G002 (June 24, 2013).

Civil monetary FBAR penalties have varying upper limits, but no minimum. These upper limits must be adjusted annually for inflation (Federal Civil Penalties Inflation Adjustment Act of 1990, as further amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015). Beginning with penalties assessed after August 1, 2016, whose associated violations occurred after November 2, 2015, Title 31 of the Code of Federal Regulations (CFR) section 1010.821, Penalty Adjustment Table, provides the adjusted maximum penalty amounts.

The inflation-adjusted civil and criminal penalties that may be asserted for not complying with the FBAR reporting and record-keeping requirements are summarized below.

⚠️ Non-Willful Violation

✅ Civil Penalty Authority: 31 USC 5321(a)(5)(B)
✅ Civil Penalty Amount: Up to the amount in 31 CFR 1010.821
✅ Criminal Penalties: N/A
✅ Comments: Applies to all U.S. persons.

⚠️ Willful Violation

✅ Civil Penalty Authority: 31 USC 5321(a)(5)(C)
✅ Civil Penalty Amount: Up to the greater of:
☑️ the amount in 31 CFR 1010.821, or
☑️ 50% of the amount in the account at the time of the violation.

⚠️ Criminal Penalties:

✅ Knowingly and Willfully Filing False FBAR: Up to $10,000 or 5 years or both. 18 USC 1001; 31 CFR 1010.840(d)
✅  Failure to File FBAR or Retain Required Records: Up to $250,000 or 5 years or both. 31 USC 5322(a); 31 CFR 1010.840(b).
☑️If violating certain other laws too, this penalty increases to up to $500,000 or 10 years or both. 31 USC 5322(b); 31 CFR 1010.840(c)
✅ Comments: Applies to all U.S. persons.

It’s possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account. 

⚠️ Civil and criminal penalties may be imposed together. 31 USC Section 5321(d).

ℹ️ Note regarding civil penalty assessment before August 1, 2016:

For violations occurring on or before November 2, 2015, the IRS may assess a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty.

⚠️ Negligent Violation
Civil Penalty Authority: 31 USC 5321(a)(6)(A)
Civil Penalty Amount: Up to the amount in 31 CFR 1010.821
Criminal Penalties: N/A
Comments: Doesn’t apply to individuals.

⚠️ Pattern of Negligent Activity
Civil Penalty Authority: 31 USC 5321(a)(6)(B)
Civil Penalty Amount: Up to the amount in 31 CFR 1010.821
Criminal Penalties: N/A
Comments: Doesn’t apply to individuals. Applies in addition to 31 USC 5321(a)(6)(A) penalty.

Source: Publication 5569, Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide..

🗓️ Filing Delinquent FBAR?

Filing the form late or not at all can lead to penalties. If you’re late, provide an explanation for the delay. Different compliance options may be available: Delinquent FBAR Submission Procedures

❌ Exemptions from FBAR Filing?

Some accounts, such as those held in retirement plans or trusts where a U.S. person files an FBAR, may not need to be reported.
You don’t need to report foreign financial accounts that are:

✔️ Correspondent/Nostro accounts,
✔️ Owned by a governmental entity, or by an international financial institution,
✔️ Maintained on a U.S. military banking facility,
✔️ Held in an individual retirement account (IRA) of which you’re an owner or beneficiary,
✔️ Held in a retirement plan of which you’re a participant or beneficiary, or
✔️ Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files reporting these accounts.

You don’t need to file an FBAR for the calendar year if:

✅ All your foreign financial accounts are reported on a consolidated form, or
✅ You jointly own all your foreign financial accounts with your spouse and
✅ You completed and signed FinCEN Form 114a authorizing your spouse to file on your behalf, and your spouse reports the jointly owned accounts on a timely-filed signed FBAR.

Note: Income tax filing status, such as married-filing-jointly and married-filing-separately, has no effect on your qualification for this exception.

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FBAR: FinCEN Form 114. Report of Foreign Bank and Financial Accounts

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🛠️DIY: If you want to file on your own, you will find the necessary guidance and form here:

NOTE: The BSA E-Filing System currently does not support mobile devices including devices running Apple’s iOS.
Links and FBAR resources provided by the Financial Crimes Enforcement Network.

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