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The Who, What, When and Where of FBAR/FINCEN Form 114

By Joel N. Crouch on February 3, 2020
  1. What is an FBAR? Every year taxpayers must report certain foreign financial accounts, such as bank accounts, brokerage accounts and mutual funds, to the Treasury Department and keep certain records of those accounts. Taxpayers report the accounts by filing a Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114.
  2. Who is required to file an FBAR?   U.S. persons who have financial interest in or signature authority over foreign financial accounts exceeding a certain threshold value.
  3. Who is a U.S. person?
    • A citizen of the United States (including minors);
    • A resident of the United States; or
    • An entity, including but not limited to, a corporation, partnership, trust, or limited liability company created, organized, or formed under the laws of the United States, the District of Columbia, the Territories, and Insular Possession of the United States, or the Indian Tribes, including entities that are disregarded for purposes of the tax code. 
  4. What is the FBAR reporting threshold?
    • An aggregate value of all foreign financial accounts exceeding $10,000 at any time during the calendar year.
    • For accounts denominated in a currency other than U.S. dollars, the maximum account balance is converted to U.S. dollars using the Treasury Financial Management Service Rate on the last day of the calendar year.
    • The reporting obligation is determined by account value and not taxable income. 
  5. What is a foreign financial account?
    • Financial accounts include:
      • Bank accounts;
      • Securities accounts;
      • An insurance or annuity policies with cash value;
      • Financial agency accounts;
      • Brokerage accounts; and
      • Mutual fund accounts
    • It is the location of the account that makes it a foreign financial account.
  6. What constitutes a financial interest?
    • Being the owner of record or holder of legal title;
    • Having an agent, nominee, attorney or person in some other capacity as an owner of record;
    • Owning directly or indirectly more than 50% of a corporation that is the owner of record;
    • Owning directly or indirectly more than 50% of a partnership that is the owner of record;
    • Having a present beneficial interest in a trust or receiving more than 50% of the current income of a trust that is the owner of record; and
    • Owning directly or indirectly 50% of any other entity that is the owner of record. 
  7. What is signature authority or other authority?  The authority of an individual to control the disposition of assets held in a financial account by direct communication to the person with whom the financial account is maintained. 
  8. When and where is an FBAR filed?
    • FBARs must be filed by April 15th.
    • FinCEN has indicated that it will automatically grant all taxpayers six-month extensions each year and that taxpayers will not be required to request the extension.
    • FinCEN Form 114 is filed electronically using FinCEN’s e-filing system. 
  9. What is the penalty for failure to file an FBAR?
    • A penalty up to $12,921 for non-willful violations;
    • A penalty up to the greater of $129,210 or 50% of the account balance for willful violations.
    • Penalties are per violation. There is a question of whether per violation means for each undisclosed account or for each unfiled Form 114. 
  10. What are the options for resolving delinquent FBAR filings if the IRS has not contacted a taxpayer?
    • If there is unreported income associated with the delinquent FBAR filings:
      • The IRS Voluntary Disclosure Program:
        • Must file last 6 years FBARs; and
        • The IRS will impose a willful FBAR penalty for at least one year
      • The IRS Streamlined Filing Program:
        • Must file last 6 years of FBARs;
        • Certification that failure to file FBARs was not due to willful conduct; and
        • Payment of a 5% penalty
    • If all income has been properly reported but FBARs were not filed, the IRS Delinquent FBAR program is an option.
Any taxpayer with delinquent FBARs or other tax filings should consult with a tax professional regarding the best option for resolving these issues.

For any questions on this or any other tax-related matter, please feel free to contact Joel Crouch at (214) 749-2456 or jcrouch@meadowscollier.com.