Ever increasing U.S. reporting obligations on Americans living, working, and/or investing abroad, make it difficult to keep up. This is a review of your foreign assets and FBAR reporting requirements. Foreign assets are reported on IRS Form 8938 and the FBAR is sent to the Treasury on FinCEN Form 114 (Report of Foreign Bank and Financial Accounts).
These two forms are quite similar, and many are confused about when and why to file each. I note that you must file if you meet the reporting threshold. Basically, the IRS wants you to send in the same information twice… so they know exactly where your assets are and how they are invested.
Who Must File Foreign Assets and FBAR
The Statement of Specified Foreign Assets must be filed by U.S. citizens, resident aliens, and some non-residents if your reportable foreign assets are at least $50,000 on the last day of the year, or $75,000 at any time during the tax year. Note that higher levels apply to married couples.
The FBAR is required from any U.S. person, including citizens, resident aliens, trusts, estates and U.S. structures that have foreign bank account(s) with at least $10,000 at any time during the year. So, if you have a foreign account with $11,000 for just one day, and the rest of the year your balance is $5,000, you still must report. Also, if you have 11 accounts, each with $1,000, you have $11,000 offshore and thus must report all of these accounts on your FBAR.
Foreign assets you own are reportable on Form 8938. This is to say, if you would need to report income or gains from these assets on your U.S. return, you must report their existence on Form 8938.
As for the FBAR, an interest in a financial account means you have signature authority over the account or you are the beneficial owner of the account. If you have a right to tell the bank what to do with the funds, how to invest the cash, or instruct them to send a wire, you are the signor and need to report.
You’re the beneficial owner if you’re the owner of record or holder of legal title. For example, if you have $100,000 deposited in to an account, and then assign a nominee account manager, you are the beneficial owner of the account because the funds belong to you. The signor and nominee in this case is acting on your behalf.
What is Reported as Foreign Assets and on the FBAR
When you are reporting foreign assets or the FBAR, you must report the maximum value. For the FBAR, you report the highest value in the account during the year. If you are holding funds in a currency other than USD, you should use an average FX rate, or convert on the day the account balance is at its high water mark.
This means that the amounts reported on your FBAR might be artificially inflated by transfers, one time deposits, etc. For example, you have $100,000 in account A, and transfer that to account B, and then to account C, all within the same year. Your FBAR will show three accounts, each with $100,000. The government won’t know whether you have $300,000 or $100,000 offshore but it allows them to maximize failure to report penalties.
On the Foreign Asset report, you’re to list the maximum value of each foreign asset, which includes bank and brokerage accounts, and certain other assets. You should report the fair market value in USD for each account and asset reported.
* Foreign Account: Is any bank or brokerage account at a financial institution outside of the United States (see below). For the FBAR, if the bank has a branch in the U.S., but your account is held at a foreign branch, it must be reported. If you have an account at Citibank, Panama, you have a foreign account and need to file the FBAR.
The foreign asset report is due with your U.S. tax return, including extensions. So, Form 8938 is usually due on April 15 or October 15. The FBAR is due by June 30 and no extensions are available. If you file your return on April 15, you should submit your FBAR at that time. If you get an extension for our 1040, your FBAR is still due by June 30.
The FBAR should be filed online through the FinCens BSA E-Filing System. Please see my article on how to file this form electronically.
Foreign Reporting Penalties
The penalties for failing to file the foreign assets and FBAR forms are severe… and can include criminal charges. There are many Americans sitting in jail for not telling their Uncle where their assets are. Some also