What is an FBAR, and what information is a U.S. taxpayer required to report to the U.S. Government and the IRS? There are many questions about the requirements for U.S. taxpayers with foreign accounts, investments, and assets, as well as the exchange of financial information between the IRS and Foreign Financial Institutions (FFIs) and sovereign tax agencies. If any U.S. taxpayer is not in full compliance with FBAR reporting requirements and the reporting of all foreign income to the IRS the risks they face include extremely high penalties, fines, unpaid taxes and interest, as well as criminal prosecution for tax evasion.
U.S. taxpayers are not simply taxed on income they earn in the United States. The United States is the only country who taxes the income of their taxpayers worldwide. Obviously, there have been many attempts over the years to reduce tax exposures through various strategies and schemes, many involving offshore financial accounts. The Financial Crimes Enforcement Network (FinCEN) Form 114 Report Foreign Bank and Financial Accounts, commonly referred to as FBAR, was originally developed to help the U.S. reduce international crime and money laundering. The FBAR is also used to identify the financial accounts, investments, business ownership interests and assets of U.S. taxpayers around the world.
FBARs are required to be submitted electronically to FinCEN by April 15th.
Which U.S. Taxpayers are Required to File an FBAR?
Now that you know the answer to the question “What is an FBAR?” the next question is “Who is required to submit an FBAR to FinCEN?” Do you have offshore or foreign investments, business interests, or bank accounts? Do you have signatory authority on any account(s) outside the United States? If the aggregated total of all such accounts or assets exceeds $10,000 at any point during the tax year (even for one day), you are required to make a full and transparent disclosure of all offshore accounts on the Foreign Bank Account Report or FBAR.
This includes, but is not limited to:
- Bank Accounts
- Investment Accounts
- Depository Accounts
- Custodial Accounts
- Tax Favored Foreign Retirement, Pension and Non-Retirement Savings Accounts,
- Stocks in a Foreign Entity or Issued by a Person Outside of the United States
- Collections Owned and Stored Abroad
- Cash Value Life Insurance Contracts
- Ownership Interest in a Foreign Corporation, Company or Partnership
- Cryptocurrency or Non-Fungible Tokens (NFT)s
Does the IRS have Access to the Information on an FBAR?
The IRS has direct access to the information provided on an FBAR. The IRS plainly states: “The government can use FBAR information to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.”
What is the Difference Between an FBAR and IRS Form 8938?
It is important not to confuse the FBAR (FinCEN Form 114) with IRS reporting requirements, including IRS Form 8938 – “Statement of Specified Foreign Financial Assets.” Any U.S. taxpayer that has an interest in “specified foreign financial assets” with an aggregate value of more than $50,000 on December 31 (or the end of a tax year) or an aggregate value of more than $75,000 at any point during the year (even for a day) is required to file IRS form 8938.
There are increased thresholds for specific U.S. taxpayers. For example, married U.S. taxpayers who reside within the United States and its territories are required to complete IRS Form 8938 if the aggregate total of their accounts exceeds $100,000 on December 31 (or the end of a tax year), or if this total exceeds $150,000 at any point during the year.
It is important to note that IRS Form 8938 doesn’t apply to “non-financial” assets such as real property or personal property. The 8938 is not required if the information has already been disclosed on other IRS forms such as the Form 5471 (Information Return of U.S. Persons with Respect to Certain Foreign Corporations), or the Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts).
U.S. Taxpayers with Offshore Accounts, Assets, and/or Income Should Consult with an Experienced Tax Attorney
It is the responsibility of all U.S. Taxpayers to understand and comply with all laws and regulations regarding the payment of taxes. Ignorance is not a valid excuse when dealing with the IRS or a U.S. tax court.
What is an FBAR and when are you required to report offshore accounts, assets and/or income to the U.S. Government and the IRS? In some instances the answers are black and white. In other cases, the answers may be less clear. U.S. taxpayers with offshore financial accounts, income or specified assets should consult with an experienced tax attorney to ensure they are full compliance with U.S. Government and IRS reporting requirements.
If you are aware of unreported or under-reported income or foreign financial accounts, there are multiple options for complying with FBAR reporting requirements and updating IRS tax returns. Your tax attorney can provide sound counsel as to the best process for reducing the financial impact and the risk of an IRS audit or criminal exposures.
We invite you to learn more about the integrated tax, legal, accounting and business consulting services of Allen Barron and contact us or call today to schedule a free consultation at 866-631-3470.
Ask about the benefits of the attorney-client privilege and all that Allen Barron can do to help you come into compliance, protect your interests and reduce your financial liabilities.
