The Instructions for FBAR (FinCEN Form 114) 2023

FBAR Instructions

FBAR Instructions 

The Foreign Bank Account Reporting form known as the FBAR is due to be filed by US persons with offshore accounts. While the Form itself is not as complex as other IRS International Reporting Forms — FBAR Instructions published by the US Government tend to be unnecessarily complex. There are various FBAR Instructions & Guides published each year for FBAR Filing, but they are oftentimes complex, convoluted, and inaccurate. The IRS and FinCEN do not see eye-to-eye on what should be included on the form. Making matters worse, the Internal Revenue Service has increased enforcement of foreign accounts compliance.  For U.S. persons with unreported offshore accounts, assets, and investments — may be subject to offshore fines and penalties for noncompliance. While the threshold filing requirements are relatively low, the penalties can be high. Even though the FBAR is less complicated than many other Department of Treasury reporting forms, it can still be difficult to complete. If you are out of compliance, it is important to note that the TRS has developed various FBAR Amnesty programs, which are collectively referred to as Offshore Voluntary Disclosure.

10-Step FBAR Instruction Filing Guide

These FBAR instructions are designed to assist you with understanding the FBAR if you are filing for the current year not out of compliance for prior years. It is not intended for you to rely (or your tax professional) on to actually file the form. The summary is basic, and there are many other factors that may impact your specific filing, especially if it is a late filing.

Are you a U.S. Person?

The form must be filed by U.S. persons. In order to confuse you, the IRS does not define a US person to mean the same as U.S. Citizen. A US person typically falls into three categories: U.S. Citizen, Legal Permanent Resident, Foreign National who meets the IRS Substantial Presence Test (typically individuals on H-1B Visa, L-1 Visas, and E-2 Visas – although it is not a requirement to have one of these Visas).

If you are a US person, then you move on to step two.

Do You Meet the Threshold Requirements?

The threshold requirements are relatively simple. On any day of the year, if you aggregated (totaled) the maximum balances of all of your foreign accounts, does that total amount exceed $10,000? If it does, then you have to file the form. The most important thing to remember is you do not need to have more than $10,000 in each account; rather, it is an annual aggregate total of the maximum balances of all the accounts.

Identify What is an Account

This is one of the more difficult parts of the job. That is because when a person thinks of financial accounts, they typically think of a “Bank Account.” It makes sense since the word “Bank” is included directly in the FBAR definition. Therefore, many people (understandably so) will only focus just on bank accounts. Unfortunately, you have to include all financial accounts unless it is otherwise excluded (and there are only a few exclusions).

Some examples of other accounts include:

• • • Stock accounts that have an Account Number

    • Private Pension Accounts

    • Investment Accounts

    • Foreign Mutual Funds and ETF Accounts

    • Foreign Life Insurance that has a Surrender Value

How Many Accounts Do You Have?

This is an important question, because if you have more than 25 accounts then you do not have to list all of the accounts on the actual form. Rather, you maintain your own records so that the IRS contacts you on a future date, you will have that information available.

Like most people, if you have less than 25 accounts then you would report all the accounts on the FBAR. It does not matter if your account has a zero balance, and it does not matter if the account was “dormant.” If the account is open and you are listed on the account, you have to report it.

What is Your Relationship to the Account?

There are different sections of the FBAR. The sections are broken down into three main categories, which include ownership of the Account, co-ownership or joint ownership of the account, and signature authority and/or no monetary interest in the account.

The latter category typically includes people who may have been included on the account in an emergency when a parent or elderly individual is getting on age. Also, if you are an employee and you have signature authority, that is included as well.

Categorize the Different Accounts

It is important that you prepare separate categories to identify each different type of account. That is to make sure that, for example, you do not report an account you have signature authority in this section that is labeled account ownership because then the IRS and U.S. government will believe that the money listed is your own money — as opposed to money for which you may have no ownership over.

Determine the Maximum Balance

You are not required to search for the Holy Grail of maximum balances. In other words, you should do the best you can. If you have bank statements for each month, then you would use each month’s statement to determine what the maximum value is. Likewise, if you have a passport account passbook account and you only get it updated when you enter the bank, then you will have to use the best value you can.

Thereafter, make sure you have identified the maximum balance available for each account.

Exchange Rates

You are not required to use any specific exchange rate, but it has to be reasonable. Both the Department of Treasury and the IRS each publish their own annual exchange rates and feasibly, either exchange rate would be okay to use.

It is important to make sure that you use the respective exchange rate for the year at issue. Sorry for those of you with euros, rupees or rubles who want to use current exchange rates for prior years.

If you are submitting to one of the offshore disclosure programs or a reasonable cause statement and have to go back six years, then you will have to use the rate that was available six years ago and not today’s rate for filing prior forms.

Complete the FBAR

The FBAR is relatively simple from a preparation standpoint. In other words, for each account, you will identify the name of the institution, the address, and the maximum balance. There’s not much more needed beyond this information.

If you are unable to access the maximum balance or even come up with your best estimate, you can mark off the maximum balance unknown for each account to which this is applicable.

Keeping in mind, that the more you marked off “maximum balance unknown” the higher the chance that the FBAR might be further scrutinized. If you are in this type of situation, please be sure to speak with an experienced Offshore Disclosure Lawyer first.

What if I Made a Mistake on the FBAR?

It depends on the type of mistake. For example, was it a mistake in reporting the balance or were accounts completely missed? If it was inaccurate reporting, then the level of the inaccuracy may determine what steps the filer should take to resolve the inaccuracy.  For missed accounts, the filer will generally have to go back and resolve the issue with one of the FBAR Amnesty Programs.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.