All you should know about Foreign Bank Account Reporting in the US

?Do you maintain financial accounts outside the United States? Many individuals keep overseas accounts for convenience and ease of access, but that convenience and ease of access create important implications. Because foreign banks do not have to report to local authorities on the same conditions that domestic banks do, the U.S. government relies on the FBAR (Foreign Bank Account Report) to track people who may be utilizing these types of accounts to circumvent U.S. laws.

FBAR information is important for tracing funds that may be traced to illicit activities or for detecting undeclared income held or earned abroad. The Treasury Department, in line with the Bank Secrecy Act, is allowed to collect information from U.S. persons having financial interests in, or signing authority over, foreign accounts. Such knowledge is translated into sound compliant financial management.

Who is required to report FBAR?

U.S. persons, who can include citizens, residents, corporations, partnerships, limited liability companies (LLCs), trusts, and estates, have to report their foreign financial accounts on the FBAR if they have a financial interest in or signature authority over at least one account located outside the United States. This also includes U.S. persons that are disregarded entities for tax purposes, which may also be necessary to file.

The FBAR filing requirement applies when the aggregate value of foreign accounts exceeds $10,000 at any time during the calendar year.

It is important that you apply Treasury Reporting Rates of Exchange for the last day of the calendar year when converting foreign currency to U.S. dollars.

Note: While the FBAR focuses on the value of foreign accounts, the type of account or whether it generates taxable income does not affect whether one must file.

What do you mean by having financial interest in a financial account?

According to the IRS, for FBAR purposes, a financial interest means that a U.S. person has ownership or control over a foreign financial account. It can happen in several ways: first, if the person is the owner of record or holder of legal title to the account, regardless of whether the account benefits them or someone else.

It also applies if the account is held by someone who acts on behalf of the U.S. person, like an agent or nominee.

A U.S. person also has a financial interest if he or she owns more than 50 percent of a corporation, partnership, or trust that holds foreign accounts.

They would also need to report accounts if the person possesses more than 50 percent of an entity's voting power, value, or profits and that entity has foreign accounts.

What is included in these Financial Accounts?

·         Bank Accounts: This includes savings accounts, checking accounts, and time deposits.

·         Securities Accounts: Such as brokerage accounts and accounts of securities derivatives or other financial instruments.

·         Commodity Futures or Options Accounts: Accounts maintained for trading commodities or options.

·         Insurance or Annuity Policies: Specifically, one with a cash value, such as whole life insurance.

·         Mutual Funds: Similar pooled funds that are publicly available, with regular net asset value determinations and redemptions.

·         Other Accounts: Accounts with a foreign financial institution or of individuals carrying on financial institution business.

What counts as foreign?

Do not worry if you don't know what "foreign" means for FBAR purposes. "Foreign" means the location of the account, not the nationality of the financial institution. An account is "foreign" if it is located outside of the following areas

 The States of the United States, including the District of Columbia

U.S. territories and possessions, including:

        Ø  Commonwealth of the Northern Mariana Islands

        Ø  American Samoa

        Ø  Guam

        Ø  Commonwealth of Puerto Rico

        Ø  U.S. Virgin Islands

        Ø  Trust Territory of the Pacific Islands

Indian lands as defined in the Indian Gaming Regulatory Act.

Therefore, an account held outside of these locations would be a foreign location for reporting under FBAR.

For example, an account located at a London branch of a U.S. bank would be considered foreign for FBAR reporting, while an account at the bank's U.S. branch is not. The determining factor isn't whether the bank is foreign or domestic but rather the location of the branch.

Accounts that are Exempt from FBAR

·         Accounts that are maintained by foreign banks but are denominated in the currency of the foreign country.

·         Accounts maintained by recognized international financial institutions.

·         Accounts owned by government entities.

·         Accounts at U.S. military banking facilities.

·         Individual Retirement Accounts (IRAs) owned by you or in which you have a future interest.

·         Accounts in retirement plans of which you are a participant or beneficiary.

·         If you are a beneficiary of a trust, you don't need to report the trust's foreign accounts if the trust itself, the trustee, or an agent of the trust files an FBAR reporting those accounts.

·         You and your spouse jointly own all the foreign accounts, then you do not need to file if:

Ø  You sign and date FinCEN Form 114a, granting your spouse permission to file an FBAR on your behalf.

Ø  Your spouse files an FBAR by the deadline and reports all jointly owned accounts.

 The filing status of your income tax itself-whether you are married filing jointly or separately, for instance-is irrelevant to your qualified status under these exceptions.

When and where to report FBAR?

To prepare your foreign accounts, you need to –

·         Prepare and file FBAR electronically on time; do not attach the FBAR to your federal tax return. The BSA E-Filing System is mandatory for FBARs filed after July 1, 2013, so you will need to file your FBARs by this method to fulfill your reporting obligation.

·         Answer FBAR questions on your Federal tax and information returns. Look for the following questions:

        Ø  Schedule B of Form 1040 looks for questions 7a and 7b.

        Ø  Schedule B of Form 1041 asks question 3 in the Other Information section.

        Ø  Schedule B of Form 1065 looks for question 8.

Ø   For Form 1120, report answers to Schedule N questions 6a and 6b .

The FBAR is an annual report Financial Crimes Enforcement Network (FinCEN) Form 114 whose recipient date is on April 15th of the following year for which the calendar year is being reported. Filing automatically qualifies to receive an extension each year until October 15th without requesting it. As an example, you may not be able to get all the information needed to submit the FBAR by the automatic extension date. There is nothing wrong with filing as much of an FBAR as possible when you know and to amend later after you have as much information as possible.

It is recommended to keep records of your FBAR filings for 5 years from the due date of the report, which is April 15th of the year following the calendar year being reported.

Penalties on non-reporting of FBAR

Late or no filing of FBAR is a violation. You could face civil monetary penalties and/or criminal penalties for FBAR reporting and recordkeeping violations. Its assertion will depend upon the facts and circumstances of your case, including possible levels of wilfulness, negligence, and non-wilfulness. Being serious with FBAR reporting will protect you from the possible consequences.

It will be inevitable to seek the right support to navigate the complexities of FBAR reporting and compliance. Our team at Water and Shark is aware of the gray areas in U.S. regulations and takes steps to ensure that you remain compliant while optimally optimizing your financial strategies. Trust Water and Shark to pair you toward financial peace of mind, so you could focus on other important things like growing your wealth and securing your future. Contact us today to see how we can assist!