Basics of the FBAR Filing Requirements

Basics of the FBAR Filing Requirements

U.S. taxpayers who have interest in foreign financial assets or accounts may have reporting obligations of which they are not even aware. In recent years, the IRS and the Department of Justice have been aggressively pursuing U.S. taxpayers who fail to comply with certain U.S. international tax rules.

FBAR, or “Foreign Bank Account Report,” is an informational filing that must be made to the IRS by “U.S. persons” if the person has an interest in, or signatory authority over a foreign financial account, and the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. The IRS has the authority to require FBAR pursuant to Title 31 of the Bank Secrecy Act, which is actually not part of the Internal Revenue Code. The FBAR filing requirement is imposed upon taxpayers through the U.S. Treasury. The purpose of the FBAR filing is to inform the U.S. Treasury of the existence of the taxpayer’s relationship with the foreign account, bank or security. The required disclosure must be made on a Form TD-F 90-22.1, commonly referred to as Report of Foreign Bank and Financial Accounts, or FBAR.

Persons and Financial Accounts Subject to FBAR Regulations

For the purposes of the FBAR regulations, “United States person” includes U.S. citizens, alien residents of the United States, and entities “created, organized, or formed under the laws of the United States,” a U.S. state, the District of Columbia, “the Territories and Insular Possessions of the United States,” and “the Indian Tribes.” The term “person” includes individuals and “all entities cognizable as legal personalities” and a “foreign country” may include “all geographical areas outside the United States.” For these purposes, an LLC is considered to be a U.S. person, as is a trust organized under the laws of a U.S. state or the District of Columbia. The definition of “financial accounts” also has particular meaning under the statute and certain financial instruments are explicitly excluded from the FBAR requirement.

Who is Required to File an FBAR Report?

The FBAR filing requirement applies to any U.S. person if the aggregate value of the person’s foreign accounts exceeds $10,000 at any point during the calendar year. This $10,000 threshold applies to the aggregate of any foreign account or asset held by the U.S. person, and the relevant amount for the purposes of the calculation is the maximum amount of each account or asset during the calendar year. The reporting obligation is triggered even if none of the applicable accounts exceeds $10,000 during the calendar year. Any U.S. person who is required to file an FBAR as a holder of a foreign bank account must also report the existence of the account on his or her U.S. income tax return.

Individuals with foreign assets and bank accounts have been under increased scrutiny in recent years. In addition to reporting foreign income, taxpayers must take the important step of filing an FBAR form in order to avoid penalties and fines. If you believe that you may be required to complete an FBAR filing or are unsure about your international tax situation, you should consider consulting an attorney knowledgeable about international tax.

A Tax Attorney Can Help with FBAR Requirements

If you have foreign accounts or interests in specified foreign financial assets, you may have reporting obligations of which you are not even aware. In order to fully understand and evaluate the options available to you and your complicated tax situation, you should consider working with an experience tax attorney.  William D. Hartsock has been successfully helping clients comply with U.S. International Tax Laws and deal with issues related to worldwide taxation since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.