Understanding FBAR Compliance
Posted on March 19, 2025
What Is The FBAR?
The Foreign Bank and Financial Accounts Report (FBAR) is a critical compliance requirement for U.S. persons holding foreign financial assets. This article will walk you through the essential details of FBAR compliance, including who must file, what must be reported, important deadlines, and the potential penalties associated with failing to file.
While the FBAR is a cornerstone of foreign asset reporting, it is not the only form U.S. persons may need to file. Always consider the possibility of other foreign filings that may exist, especially when a taxpayer has assets located in a foreign country. This article speaks only to the FBAR.
Understanding the FBAR Basics
The FBAR, officially known as FinCEN Form 114, is a specialized form created to capture information about foreign financial accounts held by U.S. persons. While the collection process is administered through FinCEN, the IRS takes charge of assessing and enforcing penalties for non-compliance. Essentially, the report requires you to disclose details such as account numbers and maximum account balances for each of your foreign financial accounts. The FBAR is not part of your federal income tax return; it’s a separate filing designed to enhance financial transparency for accounts located abroad.
Who Is Required to File
In simplest terms, FBAR requirements apply to almost any “U.S. person,” including citizens, resident aliens, trusts, estates, and various domestic entities, such as corporations and partnerships. If you sit comfortably in this definition and have at least one account located outside the U.S., you may need to file. Even if you do not define yourself as the “owner” of the foreign account, having signature authority—meaning the power to control the disbursement of funds—can trigger a filing obligation. Distinguishing between “financial interest” and “signature authority” is vital. Having a financial interest means you own the assets in the account or are otherwise entitled to the funds. Signature authority, by contrast, simply gives you the ability to control the movement of money without actual ownership. Both situations can result in an FBAR filing requirement.
Which Accounts Are Reportable?
Many types of accounts fall under FBAR’s reach. Common examples include traditional bank accounts (savings, checking), brokerage accounts, mutual funds, certain annuities or life insurance policies with cash value, and pension plans located outside the United States. Even if you hold multiple foreign accounts in one financial institution, each unique account number or contract may be reportable.
A frequent misconception arises around jointly held accounts. If you share a foreign account with another person, you typically report the highest value of the entire account, not just your share. Certain accounts held by governmental entities, international financial institutions, and specific U.S. retirement accounts may be exempt from FBAR requirements, but these exceptions can be relatively narrow.
FBAR Thresholds & Deadlines
The official due date to file your FBAR each year is April 15, aligning with the typical tax season. However, if you miss the April deadline, the government provides an automatic extension to October 15 without the need to file a separate extension form. This provision offers flexibility—but be mindful. Missing even the extended deadline could result in steep penalties.
While the FBAR does share important calendar markers with your income tax return, it is not filed with it. Instead, it must be submitted electronically through FinCEN’s E-Filing System.
Determining whether you have a filing obligation for one of these deadlines hinges on whether your aggregate foreign account balances ever exceed $10,000 at any point in a calendar year. “Aggregate” means you must look at all your foreign accounts together. For example, two accounts holding $6,000 each push you over the reporting threshold, even if neither account alone ever holds more than $10,000. It is easy to surpass the limit if you have multiple accounts, shifting exchange rates, or even a short-term spike in one or more accounts during the year.
Penalties for Non-Compliance
The cost of ignoring FBAR requirements can be significant, even if you didn’t realize you were required to file. In the case of non-willful violations—where a taxpayer fails to report foreign accounts but did so without intentional wrongdoing—penalties have historically been assessed both per form and sometimes per account. In a recent legal development, however, the Supreme Court clarified that the government is more restricted in how it levies these non-willful penalties, capping them at $10,000 per year rather than per account. While this is a relief for many inadvertent violators, the penalty sums can still add up over multiple years.
For those found to have willfully violated FBAR rules—meaning there was intent, reckless disregard, or willful blindness—the stakes are much higher. Willful violations can lead to civil penalty amounts hitting 50% of the account balance for each year of non-compliance. Criminal penalties, though rare, remain on the table if the IRS concludes that the taxpayer’s actions involved more serious financial crimes, such as deliberate tax evasion or money laundering. Overall, establishing willfulness typically depends on the government’s broader assessment of the taxpayer’s actions, rather than a single factor.
Conclusion
Navigating FBAR requirements can be intricate, especially if you have multiple foreign accounts, complex investments, or past non-compliance. If you believe you may have FBAR filing obligations—or need help addressing previous reporting oversights—please reach out to your Topel Forman contact for assistance.
