Whether you’re opening a bank account abroad or considering international investments, it’s essential to understand the U.S. tax implications of having interests foreign financial accounts. As a part of the Bank Secrecy Act, the U.S. Department of Treasury may require you to file a Report of Foreign Bank and Financial Accounts (FBAR), also known as a FinCEN Form 114 or a Foreign Bank Account Reporting.
Who Must File a Foreign Bank Account Reporting (FBAR)?
U.S. citizens, residents, and entities that have financial interests in or signature authority over a foreign financial account may have to file a Foreign Bank Account Reporting each year in which the accounts remain open. Entities include (but aren’t limited to) corporations, partnerships, LLCs, estates, and trusts that were created in the United States or under U.S. laws.
According to the Internal Revenue Service (IRS), you are required to file an FBAR if:
- the person/entity had a financial interest in or signature authority over at least one financial account located outside of the United States; and
- the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
There is a common misconception that an FBAR is notrequired as long as each account holds less than $10,000, but that isn’t correct. The FBAR filing requirements are based on the total amount (aka aggregate value) of all foreign accounts.
The due date for each year’s FBAR filling coincides with the deadline for filing tax returns.
What Type of Accounts Require an FBAR?
The term financial accountsis broad and refers to a wide range of banking and investment accounts, including:
- Bank accounts – such as savings accounts, checking accounts, and time deposits.
- Securities accounts – such as brokerage accounts and securities derivatives or other financial instruments accounts.
- Commodity futures or options accounts.
- Insurance policies with a cash value – such as a whole life insurance policy.
- Mutual funds or similar pooled funds – that is a fund that’s available to the general public with a regular net asset value determination and regular redemptions.
- Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution – such as retirement savings plans, tax-free savings accounts, and individual retirement accounts.
Failing to file an FBAR is a costly mistake. Whether you’re an individual or corporation that maintains any accounts or investments overseas, it’s essential to work with CPAs who are experts in International Taxation.
With over 35 years of experience, Hall & Company specializes in international taxation and business consultation. Contact us via email or call our offices at: 949-910-HALL (4255) and we will put you in touch with Jim Curtis, our international tax senior manager.