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FBAR Filing Basics

FBAR Filing Basics

If you are US citizen, Resident or Expat and you hold accounts in a foreign bank or foreign financial institution with a balance that exceeds $10,000 at any time of the year, you are obligated to file Foreign Bank and Financial Accounts Report (FBAR).

Five Elements of FBAR Filing:

1. You must file if you are a citizen or US Person

U.S. Persons means:
  • U.S. Citizen
  • U.S. Residents
  • U.S. entities and any entity created or organized In U.S. or under U.S. law tax status disregarded.

2. You have a financial interest in or signature authority over an account

Financial Interest means:

  • If You are U.S. person and you hold title directly.
  • If You hold title for the benefit of a U.S. person.
  • If you hold title indirectly.

Signature Authority means:

  • You can control disposition of account assets.
  • It can be in conjunction with another.
  • By direct communication; Oral or written.

Signature authority does not mean:

  • Supervisory approvals.

3. That account is a Foreign Financial Account(s)

Foreign Account means: Outside the United States, which is:

  • States or foreign countries
  • D.C. Territories and Possessions
  • Indian lands
  • Physical location of account governs

Financial means:

  • Both monetary and non-monetary assets.
  • Bank, brokerage, and investment accounts; insurance and annuity policy cash values; and mutual funds are specifically named.
  • Generally not real and personal property.

4. The aggregate value of the account(s) exceeds $10,000 at any time during the calendar year

Aggregate Value Exceeds $10,000 means:

  • Aggregate accounts with financial interest and those with signature authority.
  • Aggregate accounts owned directly and those owned indirectly.

Reportable Accounts

  • Bank accounts checking, savings, CDs.
  • Securities or brokerage accounts (buying, selling, holding or trading stocks, bonds, etc.).
  • Other financial accounts.
  • Other deposit accounts.
  • Cash value of insurance or annuities.
  • Commodity futures or options accounts.
  • Mutual funds, or similar pooled funds.

Mutual Fund is defined as:

  • Issues shares to the general public and shares have a regular net asset value determination and regular redemption.

5. Reportable Account Exceptions

  • U.S. military banking facility.
  • Accounts of U.S. governmental entities.
  • International financial institutions.
  • Correspondent or Nostro accounts.
  • Held in a U.S. IRA (if owner or beneficiary).
  • Held in a tax-qualified retirement plan if participant or beneficiary.
  • Consolidated filing.

Custodial Accounts

  • Omnibus foreign accounts held by U.S. Banks or other financial institutions to hold investments of multiple persons.
  • If U.S. Person can only access account through U.S. entity and cannot directly access the foreign account, no FBAR reporting is required.

Valuing Accounts for FBAR

  • Each account valued separately at its highest value.
  • Periodic statements may be relied upon.
  • Value in local currency is converted to U.S. dollars at 12/31 rate.
  • Aggregate all accounts.
  • Do not double count for determining threshold.

Exceptions to FBAR filings

  • Signature Authority Exceptions

Officer or employee, no financial interest of:

  • Bank examined by U.S. federal regulators.
  • SEC or CFTC registered institution.
  • Authorized Service Provider (SEC registered).
  • U.S. listed entity (foreign or domestic).
  • A U.S. subsidiary of a U.S. listed entity.
  • Entity registered under 12(g) of SEC.

Trust Beneficiary Exceptions

  • Trust beneficiary does not need to file if trust, trustee, or agent is a U.S. person and files an FBAR disclosing the trust’s foreign financial accounts.
  • Reportable beneficial interest does not include remainder interest.
  • Discretionary beneficiary filing not required based on discretionary status.

Special Filing Rules

  • If 25 or more accounts: Check box 14a as yes and provide number of accounts.
  • No account detail required in Parts II or III.
  • Signature authority filers Check box 14b as yes and provide number of accounts.
  • Provide account owner’s information in Part IV.

Special Filing Rules For Consolidated Filing Part V of FBAR form for financial institutions

Allowed for all types of entities:

  • Parent information in Part I.
  • If you have foreign accounts: all foreign accounts, owned directly or indirectly by parent or any subsidiary, must be shown in Part V except for 25 or more.
  • If you have a domestic account: all domestic account owners, direct and indirect, must be shown in Part V.

Special Filing Rules For Consolidated Filing Part V of FBAR form for spouses combining FBAR reporting

Spouses allowed to file one combined FBAR if:

  • Non-filing spouse has only joint accounts with the filing spouse.
  • All joint accounts reported on single FBAR.
  • Spouses use FinCEN Form 114a, Authorization to Electronically File FBARs, to authorize one spouse to file for both spouses.

FBAR Record-Keeping Requirements

  • Account records must be maintained for five years. Exception: officers or employees who file an FBAR because of signature authority over the foreign financial account of their employers are not expected to personally maintain the records of these foreign financial accounts.
  • FinCEN 114a -Record of Authorization to Electronically File FBARs.

File an amended FBAR

  • Check the Amended box in the upper right-hand corner of the FBAR on page 2.
  • Complete the entire Form 114 with the corrected information.
  • Explain the reason for amending on page 1 of the form.

When You Should File FBAR

  • An FBAR should be filed on behalf for example of your son if he has reportable foreign financial accounts.
  • Remember tax filing status is not a consideration for FBAR.
  • There are no age limitations on FBAR filing.
  • In general foreign defined contribution retirement accounts are reportable on the FBAR. This goes for FOREIGN IRA TYPE ACCOUNTS such as Canadian RRSP and TFSA accounts.
  • An account with a financial institution, located in a foreign country, is a reportable account, whether the account holds cash or non-monetary assets.

Further Extension of Time for FBAR Reporting

Further extension of time for FinCEN Form 114-FBAR, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) released December 20. Because the proposed amendments issued in 2016 have not yet been finalized, FinCEN is further extending the filing due date to April 15, 2021, for individuals whose filing due date for reporting signature authority was previously extended by FinCEN Notice 2018-1. For all other individuals with an FBAR filing obligation, the filing due date remains April 15, 2020.

The IRS Requires Now FBAR Filing for Cryptocurrency and Online Gambling Accounts or Face Severe Penalties

Cryptocurrency and Online Gambling

There is a problem however. The IRS and FINCEN now allege that a foreign online poker account must henceforth be reported as a foreign financial account. The rationale seems to be that they now consider an online poker account as a “casino account” that is reportable.

And the same goes for non-U.S. Cryptocurrency Exchanges. If you have or had more than $10,000 in a foreign Cryptocurrency exchange any time during the year, it is precautious to file an FBAR to disclose the same.

This requirement has already been tested in court. In United States v. Hom the court upheld the requirement to file an FBAR. This means that you will be subject to a substantial penalty if you fail to file an FBAR. But just filing is not enough. In filing your Form 114 must be fully completed. Nothing can be left out, and this is where the problems start.

Form 114 requires an address for the entity where you have your Cryptocurrency and/or where your “casino” account is held. This is difficult to comply with. In the first place, most of these entities do not publish their addresses. Even when you contact them (email) and request the addresses required for tax purposes, they often simply do not respond, or if they do, they often politely deny your request and you are left stranded without an address as per requirement for Form 114.

It is then up to the filer to find and supply the correct address or face a stiff penalty. Also, FINCEN does not accept a DBA (doing business as) when filing. FINCEN wants the registered entity’s name. On the other hand, Treasury – for Form 8938 does require the registered name as well as the DBA.

What if the IRS comes calling?

The trouble will start when the IRS sends you a letter to schedule an appointment to examine your compliance with the requirements to file FINCEN Report 114 (FBAR).

Despite it not being an income tax examination this could be perilous and lead to liability for severe penalties for failure to comply to 31 U.S.C. Section 5314.

Thus far the IRS has resorted to imposing maximum FBAR willfulness civil penalties for those who attained adverse results during an IRS examination. The same severity followed those who attained adverse results after administrative appeals.

This resulted in taxpayers turning to the courts for relief, and it often did not turn out well for the applicants. The courts, in many incidents, upheld the maximum FBAR willfulness penalty. Arguments for the implementation of a reasonable cause standard or for the lesser non-willful penalty fell on deaf ears.

To put this into perspective:

  • A willfulness penalty is the greater of $100,000 OR 50% of the balance in the foreign account at the time of the violation.
  • A non-willful violation leads to a maximum penalty of $10,000.

If you are selected for an IRS Audit because of FBAR, the first thing you should is try to resolve the case with the IRS Revenue Agent:

  • Try to resolve the case with the IRS Revenue Agent during the civil examination.
  • A presentation should be made to the IRS Revenue Agent that includes the following:
    • Provide documentation that supports that your actions were non-willful.
    • Provide signed affidavits under penalty of perjury.
    • Factually distinguish your case from the published adverse cases.
    • Educate the Agent to why the taxpayer’s conduct was not willful.
    • Use a PowerPoint presentation that walks the agent through the evidence that shows why there were no willfulness in this case.
    • The IRS is a document driven organization. Provide more documentation to state your case and prove your contention than mere signed affidavits.
  • Insist that your CPA or representative retain legal counsel.
    • Insist that your CPA/representative retain counsel to provide legal advice in order to mount a viable legal defense.
  • Realistic Expectations
    • It is not guaranteed in any way that FBAR problems can be resolved during IRS Appeals.
    • The existing case law impedes the Appeals process.
    • Future litigation where the taxpayer wins balances the scales of justice will provide practitioners with enough developments to rely on during civil examinations or administrative appeals.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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Fulton Abraham Sanchez, CPA

Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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