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Are you subject to FBAR filing requirements?

On Behalf of | Jun 23, 2022 | Tax Debt

If you maintain assets valued at $10,000 U.S. Dollars (USD) or more in accounts outside the U.S., you need to know about Foreign Bank Account Reporting (FBAR) requirements. These apply to U.S. citizens and residents as well as domestic legal entities, including businesses and estates.

If you’ve had at least that much in assets – even for one day – during the prior year, you need to file a Report of Foreign Bank and Financial Accounts with the Internal Revenue Service (IRS) by Tax Day. Otherwise, you risk running afoul of the IRS and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Part of the Bank Secrecy Act

The FBAR filing requirements are part of the Bank Secrecy Act (BSA). As you may know, this law is used by the federal government to track large transactions and help prevent financial crimes. That’s why your FBAR isn’t filed with the IRS along with your income tax return. It’s done through the BSA’s E-Filing System, which is part of FinCEN.

While most people and businesses with overseas accounts maintain them for legitimate purposes, the government still needs to know about them. Bank accounts, brokerage accounts and mutual funds typically have to be included in this reporting. Retirement accounts usually don’t.

Determining the correct amount to report

The IRS requires reporting of “the greatest value of currency or non-monetary assets in non-U.S. accounts during the calendar year.” If the account isn’t in USD, the amount needs to be converted using the exchange rate at the end of the year. There are more specific requirements for what exchange rate source and date can be used.

We can only scratch the surface of FBAR reporting requirements here. Everyone’s situation is unique. That’s why it’s crucial to have legal and financial guidance. Failing to file an FBAR can result in substantial fines and criminal penalties – even potentially time behind bars. There’s no reason that has to happen. You just need experienced professionals in your corner.