Maybe you've just learned that any foreign account that you have a financial interest in must be reported on the Report of Foreign Bank and Financial Accounts (FBAR). Or, maybe you have been filing out your FBARs all along. Many people think, "No big deal, it's just a simple form that shouldn't take any time at all." In reality, filling out this "simple form" can be tedious and extremely time-consuming.
Many of our clients do not realize that so many types of foreign accounts must be reported on their FBARs. This includes:
- Checking accounts
- Savings accounts
- Mutual funds (PFICs)
- Trusts (such as foreign retirement accounts)
- Foreign life insurance
- Certificates of deposit (CDs)
- Pre-paid credit cards in specific instances.
If an account is open for only one day in a given year, then that account needs to be reported on the FBAR form!
Reporting maximum account balances on an FBAR form
In the past, all you had to do was give the range of account values. Now you have to put down an exact figure, even though the account value has nothing to do with an income tax liability.
You must report the maximum account balance for each individual account that was open in each given calendar year. So what happens if you don’t have access to your bank statements? Many clients are no longer able to obtain access because a significant number of banks only keep statements for a limited time. Often when they contact the bank to gain access to these statements, banks want to charge them a fee per page. This can get extremely costly and very annoying! Clients argue with the banks as to why they should be charged to show a history of their own account.
If you are a lucky client that has either retained all of your records or gained access to statements, congratulations! You are one step closer to producing an accurate FBAR. Bear in mind, when you look at the statements to find the maximum account balances, you may see that there are sub-accounts within the main account. All separate account numbers must be reported on the FBAR.
Reporting CDs on an FBAR
Did you know that if you renew CDs multiple times, they generate a completely new account number? Not only do many taxpayers not realize that a new account number will be generated, but many people can’t even remember when these accounts were open and closed. It is extremely important to know your open and close dates in order to produce an accurate FBAR.
What about signatory authority? Did you know that if you have signatory authority on an account that it also must be reported on an FBAR? This is an area that gets overlooked very easily by many clients. Let’s take a very common example of signatory authority: An elderly parent often puts a child’s name on an account as a signatory authority in the event that something may happen to them. Many people think, "I have NO financial interest in this account so it doesn't have to be reported." THIS IS FALSE! If you have signatory authority on an account and absolutely no financial interest in said account, it still has to be reported on the FBAR under the Signatory Authority section. The requirements just keep piling up!
FBAR exchange rates
Exchange rates – For FBAR purposes the IRS requires all currencies to be converted to U.S. Dollars using the December 31st Treasury Exchange Rate, and not the annual average exchange rate. Many people use the annual average exchange rate when converting to U.S. Dollars, but they could be wildly misrepresenting their account values.
So next June 29th, the day before the FBAR filing deadline, you may go to file this simple reporting form. But wait, even that has changed! Now an FBAR is due on April 15th (can be delayed to October 15th if you have filed an extension).
If you need assistance filling out your FBAR, or if you have questions or concerns about past FBARs you may have misfiled or not filed at all, contact us. We've successfully assisted thousands of clients — read some of our success stories here.