The Top 12 FBAR Reporting Mistakes to Avoid – Late FBAR (2024)

1. Failure to File

The most common FBAR reporting mistake is simply failing to file. In many cases, Americans living and working outside the United States, recent immigrants, foreign citizens who are residents in the US, and US children who received gifts or bequests from their foreign parents are simply unaware of their FBAR filing obligations.

US persons with ownership or signature authority over foreign financial accounts should obtain complete copies of their account records and fully educate themselves regarding FBAR reporting obligations and seek advice from experienced US tax legal counsel.

Those who fail to resolve prior reporting errors remain exposed to substantial penalties and possible criminal prosecution. The IRS has not been sympathetic to uninformed foreign accountholders who failed to investigate their reporting obligations. In some cases, US courts have imposed a penalty equal to 50% of the highest account balance for each year that remained open under the 6-year statute of limitations. Many who deliberately concealed foreign bank accounts have been prosecuted.

2. The $10,000 reporting threshold is NOT determined on an account-by-account basis.

FBAR reporting is required if the aggregate value of the US person’s foreign financial accounts exceeds $10,000 at any time during the calendar year.

The reporting threshold is determined on an aggregate basis by adding the highest reported balance of every foreign account that the US person owned or over which he or she had signature authority during the calendar year. Thus, signature authority over a corporate account with a maximum annual account balance of $7,000 and maintenance of a personal account with a maximum annual account balance of $7,000 requires filing an FBAR reporting both accounts because the aggregate value of the accounts exceeds $10,000.

3. An account with a balance under $10,000 MAY need to be reported on an FBAR.

A person required to file an FBAR must report all of his or her foreign financial accounts, including any accounts with balances under $10,000. Likewise, if the reporting obligation is triggered because a person has mere signature authority over corporate accounts with a maximum aggregate balance of more than $10,000, all personally maintained foreign accounts must also be reported, regardless of size.

4. The FBAR filing obligation is NOT ONLY triggered only if the maximum aggregate balance exceeds $10,000 at year-end.

The reporting obligation is triggered if the maximum aggregate balance exceeds $10,000 at any time during the calendar year. The regulations permit an account holder to rely on the balance reported in a periodic (i.e., monthly) statement, as long as the statement “fairly reflects” the maximum account balance during the year. For an account holding foreign currency, the FBAR instructions provide that an account holder should convert the monthly foreign currency balance to US dollars using the Treasury’s financial management service rate (select Exchange Rates under Reference & Guidance at www.fms.treas.gov) for the last day of the calendar year.

The FBAR filing thresholds and other requirements for reporting foreign assets are different from those applicable to filing IRS Form 8938, Statement of Specified Foreign Financial Assets. Form 8938 is filed annually with a US Federal Income Tax Return (Form 1040) and requires information reporting on a variety of “specified foreign financial assets,” as defined therein.

5. Failure to Report Beneficial Ownership

As a general rule, any US person who has “signature or other authority” over, or is the owner of record of or holder of legal title to, a foreign financial account is required to file an FBAR, if the aggregate value of that person’s or entity’s foreign financial accounts exceeds $10,000 at any time during the calendar year. Under the regulations, the test for whether a person has signature or other authority over an account is whether the foreign financial institution will “act upon a direct communication from that individual regarding the disposition of assets in the account.” If the financial institution or account holder requires authorization from more than one individual, every individual who is authorized to direct the bank regarding the disposition of an asset is considered a signatory. If an account is in a person’s name or if he or she can sign a check, withdraw funds, direct investments, issue instructions to the bank (alone or in conjunction with another person), etc., then he or she is required to file an FBAR.

The obligation to file an FBAR extends well beyond signatories and legal account holders and includes any US person who has a “financial interest” in a foreign financial account. The term “financial interest” is broadly defined in the regulations and generally includes a US person who is a beneficial owner of the assets in the account, even though he or she may not be identified as the legal account holder in the records of the financial institution or able to communicate directly with the financial institution. Thus, a US person is required to file an FBAR if the owner of record or holder of legal title of the account is acting on the person’s behalf as an agent, nominee, attorney or in some other capacity.

6. Failure to Report Life Insurance, Retirement and Other Nontraditional Financial Accounts

The definition of “financial account” is far broader than a traditional checking or savings account at a bank, and also includes, inter alia, certificates of deposit, passbook accounts, securities (investment) accounts, accounts with a person that acts as a broker-dealer for futures or options transactions, and mutual funds or similar pooled funds. Notably, the definition also expressly includes an insurance or annuity policy with a cash value.

In many circ*mstances, foreign retirement accounts must be reported on FBARs. Narrow exceptions apply to foreign financial accounts that are held by an IRA and to participants in certain tax-qualified retirement plans. When in doubt, the account should be reported to avoid the risk of substantial penalties.

7. Failure to File by a US LLC, Partnership, Disregarded Entity or Estate

The federal tax treatment of an entity is not determinative of whether the entity has an FBAR filing requirement. Corporations, partnerships, limited liability companies, trusts and estates formed or organized under the laws of the United States all fall within the definition of a US person required to file an FBAR. Thus, a Nevada or Delaware LLC treated as a disregarded entity is still required to file an FBAR if it maintains foreign financial account(s) with a maximum aggregate balance of more than $10,000. This is the case even if the owner of the LLC is foreign (i.e., not a US taxpayer). When in doubt, the entity should file to avoid the risk of substantial penalties.

8. Failure to File an Individual Report by the Majority Owner of a Business Entity

A US person who owns, directly or indirectly, “(i) more than 50% of the total value of shares of stock or (ii) more than 50% of the voting power of all shares of stock” of a US or foreign corporation is treated as the owner of the corporation’s foreign financial accounts for FBAR reporting purposes and is required to file an FBAR on his or her own behalf reporting the corporation’s foreign financial accounts.

The rules apply similarly to a majority partner in a partnership or majority owner of any other entity. A US person who owns, directly or indirectly, “(i) an interest in more than 50% of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or (ii) an interest in more than 50% of the partnership capital” is treated as the owner of the partnership’s foreign financial account(s) for FBAR reporting purposes and is required to file an FBAR on his or her own behalf reporting the partnership’s foreign bank accounts. FBAR reporting is also required regarding the foreign financial accounts of any other entity (including a disregarded entity for tax purposes) in which a US person owns, directly or indirectly, more than 50% of the voting power, total value of equity interest or assets, or interest in profits.

Significantly, these personal filing obligations are separate from any obligation that the business entity in which the person holds a majority interest may have. Accordingly, if the corporation, partnership or other entity is a US person, then the entity itself may also be required to file an FBAR. If either the entity or signatory files an FBAR, such a filing does not relieve the majority owner of his or her personal FBAR filing obligations.

9. Failure to File by the Trustee, Grantor or Beneficiary of a Trust

Several rules related to US and foreign trusts cause confusion. First, as noted above, a US trust that maintains foreign financial account(s) with a maximum aggregate balance in excess of $10,000 must file an FBAR. This reporting obligation applies even if the trust is treated as a disregarded entity for US federal income tax purposes (such as a US grantor trust). Second, any US person who has signature or other authority over a US or foreign trust’s foreign financial account(s) (e.g., a US trustee) is also required to file an FBAR in his or her capacity as a signatory on the account.

In addition to the basic requirements noted above, a US person who (i) is the trust grantor and (ii) has an ownership interest in the trust for US federal tax purposes is treated as the owner of the trust’s foreign financial account(s) for FBAR reporting purposes and must file an FBAR reporting the trust’s foreign bank accounts. This is a personal filing obligation and is in addition to the trust’s filing obligations.

The rules for a trust beneficiary are slightly different. A US person who is the beneficiary of a foreign or US trust is treated as the owner of the trust’s foreign financial accounts for FBAR reporting purposes and is required to file an FBAR reporting the trust’s foreign bank accounts if the person has a greater than 50% present beneficiary interest in the assets or income of the trust for the calendar year. However, under the regulations, such a beneficiary may avoid FBAR reporting if the trust, trustee or agent of the trust is a US person who files an FBAR disclosing the trust’s foreign financial account(s). This limited exception only applies to beneficiaries and does not apply to grantors or trustees. When in doubt, the beneficiary should file an FBAR reporting the trust’s account(s) to avoid the risk of substantial penalties.

10. Filing of Joint FBARs by Spouses, Except in Limited Circ*mstances

Spouses are permitted to file a joint FBAR only in limited circ*mstances. The FBAR instructions permit one spouse to file on behalf of the other only if all of the following three conditions are met: “(1) all the financial accounts that the non-filing spouse is required to report are jointly owned with the filing spouse; (2) the filing spouse reports the jointly owned accounts on a timely filed FBAR electronically signed; and (3) the filers have completed and signed FinCEN Form 114a Record of Authorization to Electronically File FBARs.” In other words, if the nonfiling spouse owns or has signature authority on an account that the filing spouse is not required to report, then both spouses must file separate FBARs.

The requirement to prepare and retain the Form 114a authorization is not well-known. Treasury’s instructions to Forms 114 and 114a specifically state that if a spouse files a joint FBAR, the nonfiling spouse must formally designate the filing spouse as his or her “third-party preparer” by signing and retaining the Form 114a authorization (duly executed by both spouses). The better practice is for each spouse to file separate FBARs, which avoids the risk that the IRS might later determine that either spouse failed to meet the FBAR requirements.

11. Failure to File by Minor Children

Minor children who are US citizens or residents must file FBARs if they are the owners or signatories of foreign financial account(s) that meet the $10,000 aggregate threshold. All the same filing requirements discussed above apply equally in the case of a minor child. The FBAR instructions explain: “Generally, a child is responsible for filing his or her own FBAR. If a child cannot file his or her own FBAR for any reason, such as age, the child’s parent, guardian or other legally responsible person must file it for the child.”

12. Failure to Comply with Bank Secrecy Act Record Retention Requirements

In addition to filing an FBAR, a US person who falls within the FBAR filing requirements is also obligated to maintain certain information and records relating to foreign financial accounts for five years. The records that must be retained include the following: (1) the name of the account holder; (2) the account number; (3) the name and address of the financial institution; (4) the type of account; and (5) the maximum value of each account during the reporting period. A complete and accurate FBAR (that includes all of the above information) will satisfy these record retention requirements. Nevertheless, the better practice is to retain complete copies of bank statements for all foreign financial accounts to support the FBAR for at least six years from the due date of the FBAR, which is the limitations period. The penalties for failing to maintain adequate foreign account records are the same as those for failing to file a timely and accurate FBAR.

The IRS’ various voluntary disclosure programs to become compliant with FBAR errors. Our law firm has successfully assisted thousands of persons with FBAR filing issues.

The Top 12 FBAR Reporting Mistakes to Avoid – Late FBAR (2024)

FAQs

What are acceptable reasons for filing FBAR late? ›

So, what are the reasonable causes for filing an FBAR late? They include situations where you didn't know you needed to file, weren't aware that your account was classified as a foreign account, or didn't have the right details from your foreign bank.

How do I fix a mistake on the FBAR? ›

File an Amended FBAR

According to the FBAR instructions, a person who previously filed an FBAR but mistakenly provided incomplete or inaccurate information on the form can file an amended FBAR. FinCEN Form 114 includes a box for providing a brief explanation of the error.

What triggers an FBAR audit? ›

There are many different ways in which a person may become subject to an FBAR audit. Some of the more common catalysts for an IRS audit include: Examination of other tax matters. Voluntary Disclosure/Streamlined Audit. 3rd Party provides your information to the IRS (audit or whistleblower)

How to avoid FBAR penalties? ›

The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a ...

Does late FBAR filing trigger an audit? ›

Does filing an FBAR trigger an audit? Not necessarily, but not filing an FBAR may increase the risk of an audit.

What is reasonable cause submission? ›

Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but was nevertheless unable to comply with those obligations.

How common are FBAR penalties? ›

In general, criminal FBAR penalties are rare – and they typically only rear their ugly head in situations in which other crimes have been committed, such as money laundering, structuring, smurfing, etc.

What happens if FBAR is filed late? ›

If you're required to file an FBAR (Foreign Bank and Financial Accounts Report) and fail to do so in a timely and accurate manner, you may face significant consequences, including civil monetary penalties, criminal penalties, or both.

Does the IRS look at FBARs? ›

Filing an FBAR late or not at all is a violation and may subject you to penalties. If the IRS hasn't contacted you about a late FBAR and you're not under civil or criminal investigation by the IRS, you should file late FBARs as soon as possible to keep potential penalties to a minimum.

How far back can FBAR be audited? ›

If you have fulfilled the FBAR (foreign bank accounts reports) reporting requirements up till now then the IRS has 3 years to audit your expat returns. If it's not up to date then the 3 years are extended to 6 years.

What percentage of people are audited by the FBAR? ›

9 Yet the FBAR audit rate is less than one quarter of one percent.

Can the IRS see my foreign bank account? ›

The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to report account numbers, balances, names, addresses, and identification numbers of account holders to the IRS.

What is the largest FBAR penalty? ›

1 The maximum civil penalty for a willful violation is 50 percent of the maximum account balance during the year (or, if greater, $100,000 [adjusted for inflation] per violation). 2 Under 31 U.S.C.

Is filing an FBAR hard? ›

Filing your own FBAR can save you money and it's quite easy to do. Once you've done it once or twice, you'll be able to file your FBAR in 15-30 minutes. Here's our help guide to filing your own FBAR. Before you get started on the FBAR form, think about all the non-US bank accounts you have access to.

How much money can a US citizen have in a foreign bank account? ›

Who Must File the FBAR? A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

What happens if I miss the FBAR deadline? ›

However if you miss this deadline, an automatic extension will be granted, and an FBAR may be submitted before October 15. You may submit the FBAR at any time before this date without the need to request an extension. All FBARs must be filed electronically on the Financial Crimes Enforcement Network (FinCEN) website.

What is reasonable cause for late filing form 5472? ›

Reasonable cause generally means that a taxpayer exercised ordinary business care and prudence but nevertheless failed to comply with its tax obligations. The regulations applicable to Form 5472 penalties contain some guidance on the reasonable cause standard.

Can you file an extension for FBAR? ›

Please note, a six-month filing extension is automatically granted by FinCEN each calendar year. Failure to file an FBAR on time could give rise to penalties.

Top Articles
Latest Posts
Article information

Author: Msgr. Refugio Daniel

Last Updated:

Views: 6093

Rating: 4.3 / 5 (74 voted)

Reviews: 81% of readers found this page helpful

Author information

Name: Msgr. Refugio Daniel

Birthday: 1999-09-15

Address: 8416 Beatty Center, Derekfort, VA 72092-0500

Phone: +6838967160603

Job: Mining Executive

Hobby: Woodworking, Knitting, Fishing, Coffee roasting, Kayaking, Horseback riding, Kite flying

Introduction: My name is Msgr. Refugio Daniel, I am a fine, precious, encouraging, calm, glamorous, vivacious, friendly person who loves writing and wants to share my knowledge and understanding with you.