Top 15 FBAR Reporting Mistakes to Avoid
Each year, US Persons who have foreign financial accounts and meet the threshold for reporting may have to report these accounts annually on the FBAR (Foreign Bank and Financial Account Reporting aka FinCEN Form 114). In general, the FBAR is not as complicated as many of the other international reporting forms, such as Forms 5471, 3520-A, and 3520 –- but that does not mean the FBAR is without headache. If you were getting ready to prepare your 2021 FBAR (which is due to be filed in 2022) and start to recognize that familiar feeling of uneasiness as you begin preparing your taxes, just remember that more often than not, it’s going to be just fine. Let’s go through some of the top 15 FBAR reporting mistakes to avoid this season.
TD 90-22.1 Form Is No Longer Used
These days, the FBAR is filed using FinCEN Form 114 — even though the form may still be included with some commercial tax software. The FBAR is generally filed directly on the FinCEN website, and the document is available on the FinCEN website as well.
FBAR Is Handled Electronically
Previously, Taxpayers would file the Form TD-90 by paper, but since 2013, the form is now electronic, unless some very narrow and specific exception applies.
Submit the FBAR on the FinCEN Website
Do not print out the form and attach it to your tax return. Rather, submit the Form electronically on the FinCEN (not IRS) website.
FBAR Due Date May Still Be on Automatic Extension
Prior to 2016, the due date was June 30 with no extensions. Since then, the FBAR due date has been April 15, but it has been on automatic extension at least through the 2020 FBAR due date. Since there were previous extensions in prior years, it may still be on extension this year as well, but be sure to double-check as April approaches.
It Is Not a $10,000+ Threshold for Each Account
The threshold for having to file the FBAR is that if there is an annual aggregate total of more than $10,000 when totaling up the value of all the accounts. It includes nearly all foreign accounts, including those that have a low-dollar value, are dormant, or were opened prior to the filer obtaining US status. In other words, if the $10,000+ threshold is exceeded, then all of the accounts must be reported on the FBAR.
Unlike Form 8938 (which is only required for Taxpayers who have an interest in the account), the FBAR is required whether or not a person has ownership, co-ownership, or merely signature authority such as on behalf of a parent or an employer.
FBAR Is Required Even if No Tax Return Is Filed
The FBAR has nothing specifically to do with taxes, aside from the fact that the IRS is tasked with enforcement. Thus, even if you are not required to file the US tax return, if you otherwise qualify as a US person then you are still required to file the FBAR if the threshold is met.
Minor Children Have to File FBAR Too
There is no exception for minors, so your child’s “Child Trust Fund” in the UK or other type of custodial account is still reportable.
Includes Joint Accounts with Non-US Persons
If the US person shares a joint account with a foreign person, while the foreign person does not have to file the FBAR, the US person must still file the FBAR and identify the joint account holder –– although just how much information about the non-US person is included on the FBAR is something to discuss with your Tax Attorney.
6013(g) Election vs US Person Status
Just because a person makes a 6013(g) election to be treated as a US person for tax purposes — such as when filing a joint return with their US Person spouse — does not necessarily make them a US person for FBAR purposes.
FBAR Is Not Just Bank Accounts
The FBAR is more than just bank accounts; the form includes other types of accounts as well such as investment accounts, foreign pension plans, and foreign life insurance policies with a surrender/cash value.
Current Year Exchange Rates
It is important that when you are conducting the exchange rates for your foreign accounts – as the FBAR requires account reporting is in US Dollars, be sure to use the current year’s exchange rates and not a prior year’s rate.
Do Your Best With the Information You Can Get
This is not a test, and the results do not go on your permanent record. Just do the best you can to get the most information you can and as accurately as you can, with the understanding that some institutions do not hold onto account information while other institutions may only update the account when the person meets with the bank in person (e.g., passbook accounts) –– and with Covid that may make the latter impossible to obtain.
Missing Foreign Account Information does Not mean Avoid FBAR Filing
If you happen to be missing some information for the FBAR, that does not mean you are exempt from filing the FBAR. Rather, you will want to submit using the best information you can after conducting a diligent and reasonable search for the information.
Missed FBAR in Prior Years
If you miss filing the FBAR in prior years, you typically do not want to just start filing forward or mass-filing in prior years without submitting to one of the amnesty programs, because that can be considered a quiet disclosure and result in fines and penalties —and those FBAR penalties can be significant. You may want to consider reaching out to a qualified Board-Certified Tax Law Specialist who specializes exclusively in offshore disclosure and compliance to get a lay of the land.
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