FBAR Instructions

What is the threshold to file Form 8938?

It’s different for people living in the United States versus people living in the United States.
Because this article is focusing on Americans living abroad, we’ll focus on the threshold for those outside of the US.

Taxpayers living outside the United States.

If your tax home is outside of the US, (by meeting the IRS definition of Presence Abroad Test) you’ll need to file Form 8938 if you’re;

Filing Single or Married Filing Separately and you held more than US$300,000 of specified foreign assets at any point during the tax year, or more than US$200,000 on December 31 of the tax year.

Filing a Joint Tax Return and together, you held more than US$600,000 of specified foreign assets at any point during the tax year, or more than US$300,000 on December 31 of the tax year.

What is the IRS Presence Abroad Test?

• A U.S. citizen who has been a bona fide resident of a non-US country for an entire calendar year (Jan 1 to Dec 31).
• A U.S. citizen or resident who is present in a non-US country for at least 330 full days during any period of 12 consecutive months that ends in the tax year you’re filing for.
  
  

What gets included in “Specified Foreign Assets”?

1. Financial accounts maintained by a non-US financial institution.
   • These include accounts such as;
     • Bank accounts
     • Pension/retirement accounts
     • Government savings account
     • Securities/ trading/ stocks & share accounts
     • Bonds and Notes
     • An interest in a foreign trust or foreign estate.

2. Foreign financial assets that are held for investment and not held in an account maintained by a financial institution.

• Stock or securities issued outside of the US
• Any interest in a foreign entity.
• Any financial instrument or contract that has an issuer or that is a non-US person
• Any interest in a foreign trust or foreign estate.
• An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign person or party.

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How do I value my stocks & shares for Form 8938?

Use the 52-week high during the US tax year (Jan 1 to Dec 31) as your valuation for the purposes of Form 8938.

Is anything excluded from being considered a “Specified Foreign Asset”?

US-based assets do not need to be included.

Dealers in securities or commodities do not have to report any asset that isn’t being held in a financial account if the asset is subject to the mark-to-market accounting rules under section 475(e) or (f) is made for the asset.

An example is if you have a State pension in the UK. This exception does not cover any other types of pensions, retirement accounts, KiwiSaver or Superannuation accounts.

If you’re already filing Forms 3520 and 3520-A then the assets within that Foreign Trust do not need to be reported on Form 8938. This is especially important for people living in Australia with Superannuation, New Zealand with KiwiSaver and the UK with SIPPs or private pensions.

What Documents Do I Need to File an FBAR?

It is important that you keep documentation to prove where the assets are, and the information or finances held within them. You will need to provide:

• The account/asset name
• The named owner
• Account number
• Name and address of the account and of the account holder
• The maximum value throughout the U.S. financial year (January 1 to December 31)

Although the FBAR is not specific on the type of documents needed to verify this information, it is important that you keep any statements or records regarding your assets for at least 5 years, should they be required at a later date.

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Who Doesn’t Need to File an FBAR? – The Exceptions

There are certain exceptions with overseas financial entities when filing FBARs, though tax on these will still need to be declared on your normal tax return form to the IRS.

You will not need to file if:

• You are the beneficiary of a trust, and the trustee has already declared these on an FBAR themselves. (If you are unsure if they have filed personally, then it is better to submit a FinCEN form in the event that the trustee has not filed – this will prevent potential financial penalties later).
• If the funds are held in a personal retirement plan or Individual Retirement Account (IRA).
• If the assets are maintained within a U.S. banking facility overseas.
• If the finances or assets are owned or partly-owned by an international financial institution or government entity.

If your accounts or assets do require you to file an FBAR, there may also be occasions that mean you do not need to file it annually, or at all.

For example:

• If your foreign accounts are consolidated on a single FBAR that has already been submitted.
• If you own foreign assets or accounts jointly with a spouse or partner and they have previously completed the FinCEN 114a form to give you authority to file on their behalf. This means that only one of you will need to declare the foreign assets on an FBAR. In this case, tax return filing has no impact on your eligibility to file an FBAR. Even if you normally file jointly for tax, you still need to complete a 114a form to be able to file jointly for foreign account or asset declaration.

What Happens If You Miss the Deadline?

If you miss the April deadline there will be no problem for as long as we have the automatic 6-month extension.

If you miss the extended deadline then penalties could be added to your existing tax return.

Penalties can be issued if you file after the deadline, do not fill in the correct form, were not aware that you needed to file an FBAR, or miss assets when filing… so don’t forget those empty bank accounts that you haven’t closed, or closed during the tax year.

These problem with not reporting everything, is that it can seem like you’re trying to hide something, even though in reality, you probably forgot or were not aware.

Either way, the penalty is $10,000 per account. For this reason, it is worth seeking advice, especially on your first FBAR attempt.

Wait! It gets worse… if you have big assets outside the U.S. and have filed previously, FinCEN will consider that missed deadline or inaccurate filing as an attempt to hide assets. They can then issue much higher financial penalties of up to $100,000 per violation.

The maximum penalties for criminal or civil violations of your FBAR are:

• Non-wilful violation of a transaction (unknowingly failing to declare an asset on the FBAR or not filing at all due to being unaware) – $12,921
• Wilful violation of a transaction (knowingly failing to declare an asset or account on the FBAR) – $129,210
• Single negligent violation by a business or institution (a mistake regarding a corporation or institution that shows lower financial assets) – $1,118
• A pattern of negligent violations by a business or institution (where it is obvious an institution is repeatedly or deliberately filing incorrectly) – $86,976

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FBAR Filing Deadline Extensions & Exceptions

As we previously mentioned, the FBAR filing deadline is the same date as your federal tax return deadline, but there are certain circumstances where FinCEN will grant an extension.

During 2021, a new rule was issued b FinCEN stating that individuals who had signatory, trustee or nominee obligations toward overseas accounts or assets, but had nothing to gain personally from these in regard to finances, would be granted an extended deadline to file the FBAR.

In these cases, the obligated party would have until April of the following financial year to file the FBAR. For finances that need to be declared for the 2021 tax year, the FBAR would not need to be filed until an April 2023 deadline.

This same deadline applies to specific employees or officers working with investment advisors who are registered with the U.S. Securities and Exchange Commission (SEC). This means that employees of larger global entities that are registered with SEC would not be immediately responsible for filing an FBAR at the same time as the overall tax return, simply for being an account controller.

Even if you do not meet these criteria, you may still be eligible for an automatic extension if you visit the FinCEN website to request one. If you request an extension, this is an automatic 6-months from the original deadline of April 18, giving you until October 15 2022 to file the FBAR for 2021. If you miss this extended deadline, then penalties will be incurred for your late response.

I’ve never filed an FBAR

You’re not the only one but you need to take action. There is a method to catch up on your FBARs without attracting unwanted attention and late-filing penalties.

The method is determined by your general US tax compliance. If you’re up to date on US tax returns but haven’t filed FBARs then we can help you catch up on the FBARs.

If you’re also behind or have never filed your US federal tax returns then your best solution is likely to be the IRS Streamlined Tax Amnesty program.

If you’ve been filing US tax returns but missing Form 8938 then file amended tax returns under the protection of the Streamlined Tax Amnesty program to catch up safely, without penalties.

Conclusion

FinCEN 114 form is available from January 2022 online to file before the April deadline, or mid-October with the 6-month extension.

If you have assets or accounts overseas, it is best to submit the FBAR as soon as possible to avoid any charges that could be incurred due to late filing. 

If you’re not sure about what you need to file, get in touch, we’re here to help.