Demystifying the FBAR (Form FinCEN 114): A Comprehensive Guide to FBAR Reporting and its Filing Requirements

As an American living abroad, the term FBAR or FINCEN 114 might sound familiar, yet the intricacies of what it entails, why it matters, and how to navigate it might remain unclear. In this article, we’ll delve into the world of FBAR—Report of Foreign Bank and Financial Accounts—unravelling its significance and demystifying the process of filing. Whether you’re an expatriate or an entity with financial interests overseas, understanding the FBAR is crucial to stay compliant with U.S. regulations and avoid potential penalties. By the end of this guide, you’ll not only grasp the essentials of FBAR but also gain insights into the types of accounts to report, filing thresholds, and the necessary steps to ensure a seamless and penalty-free process. Let’s embark on this journey to navigate the complexities of FBAR together.

Who Needs to File?

If you are a U.S. Person—comprising individuals who are U.S. citizens, U.S. Green Card holders, or U.S. tax residents (individual, trust, or entities)—you are required to file an FBAR if you have a financial interest in or signature authority over non-U.S. financial accounts, and the aggregate value of these accounts exceeds US$10,000 at any point during the calendar year.

It’s crucial to emphasize that U.S. tax treaty provisions do not alter residency status for FBAR purposes. Even if you qualify for certain tax treaty benefits, such as filing a U.S. non-resident tax return (1040NR), you are still obligated to file an FBAR if your presence in the U.S. exceeded 183 days during the year. This ensures that individuals with significant financial ties abroad fulfill their reporting obligations, irrespective of their tax filing status under any applicable treaties.

What is Reported?

Generally speaking, if you, as a U.S. Person, maintain any financial accounts outside of the U.S., whether held directly or indirectly (for instance, having signature authority over your child’s bank account), it is likely that these accounts need to be reported on the FBAR.

For Americans living in Canada, common accounts subject to FBAR reporting include but are not limited to:

• Canadian bank accounts
• Canadian non-registered security accounts
• Canadian registered retirement savings plans
• Canadian Tax-Free Savings Accounts
• Canadian First Home Savings Accounts
• Canadian Registered Education Savings Plans

It’s important to note that while certain accounts, such as a registered pension plan, may be exempt from FBAR reporting, they may still need to be reported on Form 8938—a topic we will delve into later in this article. Being aware of the specific types of accounts that fall under FBAR reporting requirements is essential to ensure comprehensive compliance with U.S. regulations.

Filing Threshold

As mentioned previously, if you had financial interest in non-US financial accounts exceeding an aggregate value of US$10,000 at any point during the year, you are required to file this form. To break this down, this means if you accumulate the maximum value in your non-US financial accounts during the calendar year, and the sum of the maximum value of these accounts exceeded US$10,000, you have an obligation to file this form. The foreign exchange rate used to convert the foreign currency into US dollars would be the year-end exchange rate per US treasury.

To put this into an example, assume taxpayer A had the following accounts and maximum account balances (assume all converted to USD):

• Chequing account: US$5,000 on January 15
• Savings account: US$3,000 on June 16
• RRSP Account: US$5,000 on Dec 31

The aggregate value of the accounts adds to US$12,000, which exceeds the threshold of US$10,000. Therefore, taxpayer A would need to file an FBAR.

Reporting Process and Filing Deadlines:

Form FINCEN 114 must be completed and filed electronically through the BSA E-Filing System, which is filed separately from your tax returns. The filing deadline is April 15 of the following calendar year. If you are unable to meet the April 15 deadline, an automatic extension until October 15 is granted without the need for a separate extension filing. Ensuring timely submission is crucial to avoid penalties. Stay informed about any updates in the filing process, and consider seeking guidance from tax professionals for a smooth compliance process.

How is FBAR Different from Form 8938:

While FBAR and Form 8938 share similarities in reporting non-U.S. financial assets held by U.S. taxpayers, they serve distinct purposes, have different filing thresholds, and are reported to separate government departments. FBAR, administered by the Financial Crimes Enforcement Network (FinCEN), primarily focuses on the disclosure of the existence and maximum value of accounts, with a filing threshold set at an aggregate value exceeding US$10,000 at any time during the calendar year. In contrast, Form 8938, overseen by the Internal Revenue Service (IRS), is concerned with the income generated by specified foreign financial accounts and has varied filing thresholds based on the taxpayer’s residency and filing status. Understanding these differences is essential for taxpayers to meet their reporting obligations accurately.

Here is a table summarizing the similarities and differences:

Penalties for Non-Compliance:

FBAR and Form 8938 have separate penalties which is why it is essential to ensure these forms are filed timely and accurately. FBAR imposes a civil penalty of up to US$10,000 per form if non-willful. If the taxpayer is willfully not filing the FBAR, the penalty can be as high as US$100,000 or 50% of the account balance, whichever is greater. The US Supreme Court has recently ruled that the FBAR penalty applies on a per form basis and not per account.

Form 8938 can charge a penalty of up to US$10,000 for failure to file, and up to US$50,000 for continued to file this form after IRS notification, and a 40% penalty on an understatement of tax attribute to non-disclosed assets.

Delinquent Filings:

If you’re discovering for the first time that you haven’t filed any of these forms, there’s no need to panic. Numerous programs are available to assist you in catching up voluntarily, without incurring additional penalties. The intention behind these forms is not punitive; rather, they are designed to support taxpayers in fulfilling their obligations and maintaining compliance. NUMIS is here to guide you through the intricacies of the forms and the process of filing under delinquent programs, providing assistance to ensure a smooth resolution.

Navigating the complexities of FBAR and Form 8938 can be intricate, but with proper guidance, compliance becomes more manageable. If you find yourself needing assistance or have realized that you need to catch up on filing these forms, don’t hesitate to reach out to our experienced advisors at NUMIS. We understand the importance of staying on top of these requirements and are here to provide the support and expertise you need. Ensure peace of mind and financial compliance—contact our advisors today to streamline your filing process and address any concerns you may have.