Who Must Report Foreign Bank Accounts?

There are many reasons why you may maintain international bank and financial accounts, and offshore banking is perfectly legal.

However, the IRS does not consider the money held in foreign accounts the same as that held in domestic banks. To put it simply, they apply much greater scrutiny to such assets and seek to discourage U.S. citizens from having offshore or overseas accounts. 

The reasons for this aren’t hard to understand; foreign financial institutions may not be subject to the exact reporting requirements as domestic institutions, which increases the risk for tax evasion, and the IRS may be less able to take revenue from such accounts. 

Nevertheless, many Americans want or need to maintain financial accounts in other countries in a global economy.

Therefore, you should not take the reporting tax implications of holding your assets in foreign institutions lightly. Ensuring you comply with IRS regulations on foreign bank and financial accounts reporting is essential. 

Read on to discover more information on who must report foreign bank and financial accounts, how to report, and what to do if you have failed to meet reporting requirements. 

What is an FBAR, and Who Must File?

Even if your foreign financial account or accounts do not generate any taxable income, you may be required to report the account to the Treasury Department as outlined in the 1970 Bank Secrecy Act. You report your interest in foreign bank accounts by submitting the Report of Foreign Bank and Financial Accounts (FBAR).

United States persons are required to file an FBAR if both of the following apply:

  1. They have a financial interest in or signature authority or other authority over at least one account located outside of the United States. Types of accounts covered by this requirement can include bank accounts, brokerage accounts, and mutual funds.
  2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported. 

Note that this applies to United States “persons,” not citizens. The law defines a person as: 

  • U.S. citizens.
  • U.S. residents.
  • Entities, including but not limited to corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States.
  • Trusts or estates formed under the laws of the United States.

Exceptions to the Reporting Requirement

Not everyone who holds a foreign financial account necessarily needs to report it. Certain types of U.S. persons and certain accounts are eligible for exclusion from FBAR reporting requirements. 

For example, individuals do not need to report foreign accounts on the FBAR if they are in individual retirement accounts, are participants in or beneficiaries of a tax-qualified retirement plan, or are a trust beneficiary (but only if another U.S. person reports the account on an FBAR on behalf of the trust).

Other exceptions, as listed on the FBAR instructions PDF, i nclude:

  • Foreign financial accounts jointly owned by spouses if one spouse is authorized to file on the other’s behalf and timely reports the jointly-owned accounts. 
  • United States persons included in a consolidated FBAR. 
  • Correspondent/Nostro accounts (maintained by banks and used solely for bank-to-bank settlements). 
  • Foreign financial accounts owned by a governmental entity. 
  • Foreign financial accounts owned by an international financial institution. 
  • Owners and beneficiaries of U.S. IRAs. 
  • Foreign financial accounts maintained on a United States military banking facility.

Specific individuals with signature authority over, but no financial interest in, a foreign financial account, may also be exempted in certain situations.

An individual is not required to report signature authority over a foreign financial account owned or maintained by a bank, financial institution, or other entity if they are:

  1. An officer or employee of a bank examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration.
  2. An officer or employee of a financial institution registered with and examined by the Securities and Exchange Commission or Commodity Futures Trading Commission. 
  3. An officer or employee of an entity with a class of equity securities listed (or American depository receipts listed) on any United States national securities exchange. 
  4. An officer or employee of a United States subsidiary if its United States parent has a class of equity securities listed on any United States national securities exchange and the subsidiary is included in a consolidated FBAR report of the United States parent.
  5. An officer or employee of an Authorized Service Provider, if the foreign financial account is owned or maintained by an investment company registered with the Securities and Exchange Commission. 
  6. An officer or employee of an entity with a class of equity securities registered (or American depository receipts in respect of equity securities registered) under section 12(g) of the Securities Exchange Act.

How to Report

The FBAR is an annual report due April 15th of the year following the calendar year you are reporting. However, it is not part of filing a tax return, and you must file it separately and directly with FinCEN.

Since June 2013, all taxpayers required to file an FBAR must do so electronically. You can download a blank copy of FinCEN Form 114 (the FBAR) and file it through the Financial Crime Enforcement Network’s FBAR E-Filing system

If you cannot e-file your FBAR and must paper-file instead, it is essential to note that you cannot simply print out FinCEN Form 114 and submit it, as that form is for e-filing only. 

Instead, for an alternative to e-filing, you will need to call FinCEN’s Regulatory Helpline. From inside the U.S., call 800-949-2732, or from outside the United States, call 703-905-3975. 

If FinCEN approves you for an exemption from e-filing, they will send you a paper form to complete and mail in. 

If you need someone else to file your FBAR on your behalf, you can authorize them to do so by filling out FinCEN Report 114a PDF, Record of Authorization to Electronically File FBARS. Be sure to keep a copy of the form in your records where you can easily make it available upon request. 

What Happens if You Don’t File FBAR?

Not filing can lead to significant penalties. Non-intentional reporting or recordkeeping violations can be subject to penalties of $10,000. (Intentional violations can be worse). 

But don’t panic yet — if you have not filed your FBAR, you can likely still do so. If the IRS has not contacted you or opened an examination or investigation into your foreign accounts, you can file your past-due disclosures with a statement explaining why the filing is late. 

In practice, as long as you 

  • report income from the foreign financial accounts accurately and pay taxes on that income through your U.S. tax return, and 
  • have not received an inquiry from the IRS regarding an income tax examination or a request for delinquent returns for the years for which you are submitting the delinquent FBAR, then

The IRS will not impose a penalty for the failure to file your FBAR. This is obviously no guarantee, and we recommend discussing this with a professional (like us) who understands your situation, but in our experience, people trying to correct mistakes don’t incur huge penalties. 

If you do have foreign bank accounts, the best thing to do is file your disclosures annually. 

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Jeff Coyle, CPA

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy.
Filing quarterly and annual taxes.
Audit support.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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