What is an FBAR?
It is a filing requirement — per the IRS website:
"If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR)."
We sometimes have clients ask us what the difference is between an FBAR, FinCEN Form 114, and Form TD F 90-22.1. We'll let you in on a little secret…they're all the same thing. But, don't think if you file an FBAR it gets rid of your Form 8938 filing requirement. It doesn't. And the IRS wonders why people are confused.
FBAR Deadlines
Your FBAR is due on April 15th (this is new as of 2017). If you do not file by that deadline, an automatic 6-month extension will be filed and the new deadline will be October 15th.
Information needed for your FBAR
We have a fact gathering sheet we give to our clients to fill out before we even attempt to file an FBAR. We'll share with you some of the most important data needed:
- Were the accounts jointly held?
- Does the money in practice belong to someone else?
- What types of accounts are they?
- What are the account numbers?
- When were the accounts opened?
- Are they still open?
- What currency are they in?
- What was the maximum account value (highest balance) during the year?)
- What were the account values on December 31st?
- How much interest was produced during the year?
E-Filing your FBAR
It used to be that you filled out a paper form, but that is no longer the case. FBARs are now filed online only. You'll want to visit http://bsaefiling.fincen.treas.gov/NoRegFilePDFIndividualFBAR.html.
You will have the option of using the online form, or uploading a PDF form. We highly recommend using the PDF form as you then have the option of saving and amending your work. This is where it can get a little tricky…if you try to open the FBAR PDF form in your browser, you will most likely get an error message. Instead, download the FBAR form and open it in Adobe Reader. It will save you from much (we know from experience) frustration.
What should be reported on your FBAR
Many people assume that only bank accounts need to be reported on the FBAR. This is incorrect. Some things you might not realize need to be included on your FBAR form:
- Fixed deposits (if you have a fixed deposit that rolls over within a year and you get a new account number, that new account needs to be reported)
- Life insurance policies
- Mutual funds
- Some pensions
- Prepaid credit cards
- Accounts you only have signatory authority on
FBAR account balance
Another error we often see is incorrect reporting of the account balance. You need to report the maximum account balance, per account, per year. Let's say the highest balance of the account was for one day only, that's the amount you need to report — and interest produced during the year must be included.
The madness continues…the balance reported on your FBAR must also be converted to US dollars. Ensure you are using the treasury exchange rate as of December 31st. You can reference the IRS website here for the exchange rates for 2008 to the present year.
Amending FBAR errors
So what if you realize that you made a mistake when filling out your FBAR? The good news is you can go back to amend your FBAR.
If you filed your FBAR through the BSA E-Filing website and you need to amend your FBAR to correct any information, please fill out a new FBAR completely and check the Amend box in Item 1. You will need to provide your Prior Report BSA Identifier after selecting the Amend box. Your Prior Report BSA Identifier was provided to you either through email or via the BSA E-Filing System’s secure messaging feature.
Filing missing FBARs
The penalties for not filing an FBAR are:
- Willful FBAR Penalty assessments: Total Penalty to be applied: 50% of highest aggregate balance for the 1 year out of the period with the highest balance. Then, that penalty is spread across each year in the period based on their respective balances.
- Non-Willful FBAR Penalty assessment: They seem to recommend applying existing penalty mitigation guidelines for each year. But, if the total penalty for a year is more than $10k, only make the penalty be $10k. Total non-willful penalty for all years cannot exceed the penalty that would be computed under the penalty mitigation guidelines for willful violation. Examiner can use discretion to determine to apply the penalty to only 1 year. Examiner can also use discretion to apply account-by-account penalty.
Obviously you want to avoid these extreme penalties. There are disclosure programs you can get into — the difference between willful and non-willful is huge so we recommend getting legal advice about what program is best for you. It's also important to know what to say, and what not to say, to the IRS when stating your reasons for failure to file.
If you need assistance with misfiled or unfiled FBARs, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.
