If you are an American living and working abroad, you might have heard of the FBAR (Foreign Bank Account Report). If not, you are not alone. US expatriates are frequently surprised to learn that they could face a hefty tax to the IRS as a consequence of not reporting their foreign bank accounts. With the filing deadline for the FBAR coming up on June 30th, here are some things you need to know.
What is the FBAR?
The FBAR was designed to stop wealthy US citizens from hiding their money in foreign bank accounts to avoid paying taxes. The offshoot is that the FBAR applies to all US citizens with foreign bank accounts, whether or not they are actively attempting to defraud the IRS. Filing the FBAR is a matter of filling out a form disclosing the details of your foreign account(s).
Who does it apply to?
Not all US expats will have to file the FBAR, but you should still be aware of it. According to the IRS, a US person with a “financial interest in or signature authority over any financial account(s) outside of the United States” with an aggregate value of more than $10,000 at any time during the calendar year is required to file the FBAR.
This means that if you hold multiple foreign accounts that reach a combined total of $10,000 at any point-even if it’s only for one day-you will need to file. Note that tax treaties with the US do note affect FBAR filing obligations. Even if you are exempt from paying taxes to the US, you may still need to file an FBAR.
Why is it important to file?
If you are required to file an FBAR and you don’t, you could face severe penalties, including fines or criminal charges. In some cases, the subsequent fine could be higher than the amount that appeared in your foreign bank account. If you have missed filing an FBAR in the previous year, you should file a delinquent report online. Depending on your situation, you may not face a penalty if the IRS finds that your late filing was due to reasonable circumstances.
It’s not just bank accounts that make you eligible to file the FBAR; you may need to consider things such as gains from foreign assets like home sales or stock shares, foreign trusts, shareholdings, or power of attorney. There are certain exceptions to the reporting requirement; be very sure that you qualify for these exceptions before determining that you don’t need to file an FBAR
You may call to file your FBAR over the phone after completing your initial FBAR online application.