FBAR Filing Requirements: What U.S. Residents with Foreign Accounts Must Know

Quick Summary

If you are a U.S. person with foreign financial accounts whose aggregate value exceeded $10,000 at any point during the year, you are likely required to file an FBAR , and many people who are required to file don’t know it. Penalties for non-compliance are severe: up to $10,000 per account per year for non-willful violations, and up to 50 percent of the account balance per year for willful violations. This article explains who must file, what counts as a reportable foreign financial account, how FBAR differs from FATCA Form 8938, and the IRS procedures available for those who need to catch up on missed filings.

If you have a bank account, investment account, or other financial account outside the United States and the total value of those accounts exceeded ten thousand dollars at any point during the year, you are likely required to file an FBAR. Many people who are required to file do not know that. And the penalties for failing to file can be severe, in some cases exceeding the value of the account itself.

I work with clients across the country who came to the United States from abroad, still maintain accounts in their home countries, inherited foreign accounts, received gifts from overseas family members, or simply kept bank accounts from earlier years of living or working abroad. For many of these clients, FBAR compliance is one of the most important and most misunderstood areas of their tax obligations.

This article explains what the FBAR is, who must file, what the deadlines are, what the penalties for non-compliance look like, and what you can do if you are behind.

What is FBAR?

FBAR stands for Report of Foreign Bank and Financial Accounts. It is officially known as FinCEN Form 114 and is filed with the Financial Crimes Enforcement Network, a bureau of the United States Treasury, not with the IRS directly.

Despite the name, FBAR has nothing to do with criminal activity in the ordinary sense. It is an information reporting requirement, a disclosure that tells the U.S. government you have accounts abroad. The law behind it, the Bank Secrecy Act, has been in place since 1970. Its original purpose was to prevent offshore tax evasion and money laundering, but its reporting requirements apply broadly to anyone with foreign financial accounts above the threshold, regardless of whether there is any wrongdoing.

Many people are surprised to learn that their ordinary savings account in Korea, India, or another country triggers an FBAR obligation. The account does not have to be secret. It does not have to be generating untaxed income. The obligation is triggered simply by having the account and meeting the threshold.

Who is Required to File an FBAR?

You are required to file an FBAR if all three of the following are true:

1. You are a U.S. person, meaning a U.S. citizen, a U.S. permanent resident (green card holder), or a person who meets the substantial presence test and is treated as a U.S. resident for tax purposes.
2. You have a financial interest in, or signature authority over, one or more financial accounts located outside the United States.
3. The aggregate maximum value of those foreign financial accounts exceeded ten thousand dollars at any point during the calendar year.

The ten-thousand-dollar threshold is calculated based on the aggregate value of all foreign accounts combined, not the value of any single account. If you have three accounts that each held four thousand dollars at some point during the year, your aggregate maximum value was twelve thousand dollars and you are above the threshold.

The definition of financial account is broad. It includes:

• Foreign bank accounts
• Foreign investment or brokerage accounts
• Foreign mutual funds
• Foreign life insurance or annuity contracts with a cash value
• Certain foreign retirement accounts

Signature authority is also a broader concept than many people realize. If you have control over an account even if you do not own it, such as an employee who has signing authority over a company account, you may have an FBAR obligation for that account as well.

What is the FBAR Deadline?

The FBAR is due on April 15 of the year following the reporting year, matching the individual income tax deadline. However, an automatic extension is available through October 15 for those who need it. Unlike some other extensions, the FBAR extension is automatic, meaning you do not need to file a separate request to get it.

If you missed prior year deadlines, those FBARs should be filed as soon as possible. There are procedures available for catching up, and the method you use matters. I will address that in more detail below. Note that if you also have unfiled U.S. income tax returns, those need to be resolved alongside your FBAR filings,learn what happens when returns go unfiled and what the path forward looks like.

What Are the Penalties for Failing to File an FBAR?

The penalties for FBAR non-compliance are serious and can be significantly larger than most people expect.

For non-willful violations, meaning failures to file that were not intentional, the penalty is up to ten thousand dollars per account per year. That penalty can be assessed for each year you failed to file. If you had two foreign accounts and failed to file for five years, the potential non-willful penalty exposure could be up to one hundred thousand dollars.

For willful violations, meaning intentional failures to file or intentional failures to disclose, the penalties are much higher. A willful violation carries a penalty of up to the greater of one hundred thousand dollars or fifty percent of the account balance at the time of the violation, per account per year.

Courts have upheld substantial FBAR penalties in recent years, and the government has shown it is willing to pursue enforcement. The penalties can be life-altering.

It is worth knowing that “willful” has been interpreted broadly by some courts. Ignoring a reporting obligation you knew or should have known about has been found to constitute willfulness in some cases. This is why the longer you wait to address missed filings, the more complicated the situation becomes.

What is FATCA and How is it Different From FBAR?

FATCA stands for the Foreign Account Tax Compliance Act. It is a federal law enacted in 2010 that requires U.S. persons with foreign financial assets exceeding certain thresholds to report those assets annually on Form 8938, which is filed with their regular federal income tax return.

FBAR and FATCA are separate reporting requirements with:

• Different forms
• Different thresholds
• Different filing agencies

But they often apply to the same people. Someone with significant foreign accounts may be required to file both the FBAR and Form 8938. Failing to file either one carries its own separate penalties.

The FATCA thresholds are higher than the FBAR threshold and vary depending on filing status and whether you are living in the United States or abroad, ranging from fifty thousand dollars to six hundred thousand dollars in total foreign asset value. But even if you are below the FATCA threshold, you may still be required to file the FBAR.

I advise all clients with foreign financial connections to evaluate both obligations together.

What Should I Do If I Have Unfiled FBARs?

If you have missed FBAR filings, there are IRS and FinCEN procedures specifically designed to help people come into compliance. The right approach depends on four key factors:

• How many years are involved
• How many accounts you have
• Whether the income was reported on your tax returns
• Whether your failure to file was willful or non-willful
• Streamlined Filing Compliance Procedures are the most commonly used path for taxpayers who did not willfully fail to file. There are two versions: one for U.S. residents (the Streamlined Domestic Offshore Procedures) and one for taxpayers residing outside the United States. These procedures allow you to file delinquent returns and FBARs and pay a reduced penalty, provided you certify that your failure was non-willful.
• Voluntary Disclosure Program through the IRS Criminal Investigation division may be a more appropriate path for taxpayers with more serious situations, including potential willful violations. This requires careful legal analysis and strategic decisions before any disclosures are made.

The worst thing to do is nothing. The second worst thing is to try to navigate these procedures without proper guidance. Getting this wrong can result in:

• Higher penalties
• Criminal referrals
• Loss of the protections that voluntary disclosure programs are designed to provide

When FBAR penalties create a large balance owed to the IRS, it is worth understanding the full range of IRS tax debt relief options available,including whether an Offer in Compromise might apply to your situation.

Who Should I Call If I Have Foreign Accounts and Am Not Sure What I Need to File?

If you have foreign financial accounts and are not certain whether you are in compliance, the answer is to get a legal review before the IRS or FinCEN comes to you. Coming forward voluntarily, with the right strategy, is almost always better than being found.

I work with clients nationwide, with my office based in Fairfax, Virginia. My practice focuses exclusively on IRS and federal tax matters, including:

• FBAR and FATCA compliance
• Streamlined procedures
• Voluntary disclosures

I am also fluent in Korean, which is significant for many Korean-American clients and other taxpayers with ongoing financial ties to family and accounts in Korea.

If you are uncertain about your situation, a consultation is the right place to start. I will review your accounts, your filing history, and your options, and I will give you an honest assessment of where you stand and what needs to be done.

Talk to a tax expert now. Book a consultation at vataxattorney.com or call (703) 202-1005.

Foreign account reporting is complex. The penalties for getting it wrong are real. You deserve someone who understands this area and can guide you through it correctly.