If it feels like you just filed required federal forms about your overseas financial holdings, you're probably right.
Last year, as we all were working to adjust to the myriad tax (and life) changes precipitated by the COVID-19 pandemic, lots of tax deadlines got pushed back. Some way back.
One of those was the filing extension for Form 114, Report of Foreign Bank and Financial Accounts, usually referred to as FBAR. Some individuals didn't have to submit this document until Dec. 31, 2020.
Now FBAR filers are facing a new deadline. Next week. On Thursday, April 15.
That's right. The May 17 automatic filing extension granted for federal tax returns and a few other tax responsibilities does not apply to FBAR.
However, if you dig a little deeper into the process, you'll discover that there's also an automatic extension until Oct. 15 for filers who can't meet next week's April 15 deadline.
Why the IRS April 15 notice? It's no secret that a popular way to avoid U.S. taxes is to stash money in an account (or two or …) abroad.
Uncle Sam tracks this taxable money held in foreign accounts through the efforts of two agencies, the Internal Revenue Service and its sister agency within the U.S. Treasury, the Financial Crimes Enforcement Network, usually referred to as FinCEN.
It's also no secret that the IRS would like to get all relevant tax material, foreign or otherwise, in and input into its systems as soon as possible. So it's no surprise, even though FBAR doesn't strictly fall under IRS jurisdiction, that it today issued an announcement that the FBAR deadline for 2021 is April 15.
But this filing, Form 114, is submitted to FinCEN, not (as just noted) the IRS. And FinCEN says in its publication on Filing Requirements For Report of Foreign Bank and Financial Accounts that there's an automatic six-month extension for the filing.
Specifically, when the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the annual due date for filing FBARs to April 15, it also mandated the extension period.
So per that law, FinCEN grants filers failing to meet the FBAR annual April deadline an automatic extension to Oct. 15. Note that it's automatic. That means you don't have to file anything else to get the added six months.
Who has to file a FBAR? Even if you can't meet the April 15 deadline and will file by mid-October, you still should be aware of the FBAR requirements.
FinCEN has been collecting FBAR data per the Bank Secrecy Act since 1970. There are two key components, the individuals who must report and the amount of money that triggers the reports.
The law says a U.S. person must file a FBAR if —
- They have financial interest in, signature authority or other authority over one or more accounts, such as bank accounts, brokerage accounts and mutual funds, in a foreign country, and
- The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
The FBAR definition of person also is broader than what we tend to find in a standard dictionary. Under the law, a U.S. person is a citizen or resident of the United States or any domestic legal entity such as a partnership, corporation, limited liability company, estate or trust.
As for what constitutes a foreign country, the law says that's any area outside the United States, Indian lands as defined in the Indian Gaming Regulatory Act, and the following U.S. territories and possessions:
- Northern Mariana Islands,
- District of Columbia,
- American Samoa,
- Puerto Rico,
- United States Virgin Islands, and
- Trust Territories of the Pacific Islands.
How much money counts? Now about FBAR's financial trigger. Again, there are two key words/phrases mentioned earlier, aggregate and any time during the calendar year.
This is a cumulative balance, meaning if you have two foreign financial accounts with a combined balance exceeding $10,000 at any one time in the tax year, both accounts would have to be reported.
Then the IRS and FinCEN also bring another consideration into play, maximum value. Uncle Sam wants this amount, too.
The maximum value of an account is a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year. "Periodic account statements may be relied on to determine the maximum value of the account," according to FinCEN, "provided that the statements fairly reflect the maximum account value during the calendar year."
If you have/had a financial interest in more than one account, each account must be valued separately.
When recording the maximum value of accounts, record all amounts as U.S. dollars rounded up to the next whole dollar, regardless of the cents. For example, $15,265.25 in an account at its highest point would be recorded as $15,266.
If an account is in non-U.S. currency, convert the maximum account value into dollars. You can use the Treasury's Financial Management Service rate for the last day of the calendar year.
What records are needed? You also must keep You must keep records for each account you must report on an FBAR that establish. The information required includes:
- Name on the account,
- Account number,
- Name and address of the foreign bank,
- Type of account, and
- Maximum value during the year.
The law doesn’t specify the type of document to keep with this information. It can be bank statements or even a copy of the FBAR you filed. Just make sure your documentation has all the necessary data.
You must hang onto these records for five years from the due date of the FBAR.
How do I file FBAR? FBAR filing, or specifically FinCEN Form 114, is not filed with the IRS. It's filed directly with FinCEN.
It also must be filed electronically at FinCEN's BSA (Bank Secrecy Act) E-Filing System website. Below is the page you'll see when you head there.
And even though it's not an IRS form and it's only filed electronically, FBAR reporting earns a spot on the Tax Forms Fiesta! page.
What if you don't report an account? Even though FinCEN offers a filing due date cushion, it eventually wants your foreign account information.
If you fail to provide it, you'll pay.
If you are required to file an FBAR and don't do so, you could face a civil penalty of up to $10,000. The penalty could be waived if you can show reasonable cause for missing the filing.
But if you willfully fail to report an account or don't provide required account identifying information, the penalty price goes up. You could be subject to a civil monetary penalty equal to the greater of $100,000 or 50 percent of the balance in the account at the time of the violation.
Wait. Isn't there another foreign account filing? Some folks right about now are wondering about another foreign financial holdings tax requirement. That's the Foreign Account Tax Compliance Act or FATCA.
FATCA requires certain U.S. taxpayers holding financial assets outside the United States to report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets.
Depending on your foreign holdings and amounts, you might need to file per FATCA, FBAR or both.
FATCA's Form 8938, when required, is sent along with your annual income tax return. And since this year, that deadline isn't until May 17, I'll blog about FATCA requirements in a future post.
Isn't it always fun to have something to look forward to, especially when it's a relatively arcane tax topic?
You also might find these items of interest:
- 2021 housing cost tax break amounts for U.S. expatriates
- FinCEN, FBAR and other tax costs that prompt or slow U.S. expatriations
- IRS not budging: April 15 is the deadline for 2021's first estimated tax payment