The Most Common FBAR Questions, Answers & Examples

Common FBAR/FinCEN114 Questions & Answers (with Examples)

FBAR FAQ Common Questions & Answers for FinCEN 114

The FBAR Is the most common international information reporting form that U.S. Taxpayers may file each year to report their foreign bank and financial accounts to the IRS and FinCEN. For taxpayers who are filing current year FBAR and are compliant with prior year reporting, the FBAR form is typically not overly complicated. However, Taxpayers who are out of compliance for prior year reporting or have several different categories of accounts, with the reporting may find the form and reporting process much more complicated — but still less complex than other international reporting forms such as Form 5471 and Form 3520-A. At Golding & Golding, we specialize exclusively in offshore disclosure and expatriation. We have authored hundreds of articles on matters involving FBAR and wanted to provide an update to some of our most common frequently asked questions regarding foreign bank and financial account reporting on the FBAR (FinCEN Form 114).

What if I Don’t Have to File a Tax Return?

Even if a person does not have to file a tax return, they may still have to file the annual FBAR. In other words, having to file the FBAR is not dependent on whether or not the person has to file a U.S. tax return. When the person is considered a U.S. person (more than just individuals) and they meet the threshold requirement for filing the FBAR, then they still have to file the form — even if they do not have to actually file a tax return that year.

When is the FBAR Due?

The Form is technically due when a person’s tax return is due, but currently the FBAR is on automatic extension.

How do I File for an FBAR Extension?

The Form extension is automatic so that no form is required to extend the FBAR filing due date.

What if I owned the Foreign Accounts Before Coming to the U.S.?

When a person files the annual FBAR, they are providing the U.S. government with a snapshot of their foreign accounts.  It does not matter if the account predated the person becoming a U.S. person. Thus, whether or not the overseas account was opened before or after becoming a U.S. person, it is reportable on the FBAR.

Do I File FinCEN Form 114 if I Live Outside of the U.S.?

Even when a person resides outside of the United States, they are still subject to the same FBAR reporting requirements as U.S. persons who reside inside the United States.

But What if the Foreign Money Does Not Belong to Me?

Whether or not the money belongs to the filer is not dispositive of whether or not the account should be included on the FBAR.  If the account is under the filer’s name, then presumably it is included on the FBAR — although ownership of the money may impact issues involving penalty mitigation.

What if None of the Foreign Accounts Exceed $10,000?

There is no requirement that each account balance exceeds $10,000.  Rather, the determining factor is whether the annual aggregate total of all accounts combined exceeds $10,000 on any given day of the year. If so, then all of the accounts should be included on the FBAR, which needs to include all dormant accounts as well.

What if None of the Accounts Generate Income?

The U.S. government does not require that the foreign accounts generate any income in order for the account to be included on the FBAR.  Therefore, even if the account does not generate any income, it should still be included in the FBAR.

What if I Don’t Know the Exact Account Balances?

In general, it is better to report the accounts with the best estimated maximum balance, than to mark off the “maximum balance unknown” box — or even worse, not filing the FBAR at all just because the filer does not have the exact amount. If the exact maximum balance is unknown and a reasonable estimate cannot be made, then the filer may indicate the box that says maximum value unknown.

What if my Minor Child has Foreign Accounts?

Minor children must also file the FBAR. There is no current exception to FBAR filing for minors.

Is a Foreign Pension Reportable?

Yes – in general, foreign pensions are reportable. Foreign pension accounts would qualify as foreign financial accounts and therefore would be included on the FBAR.

Is a Foreign Life Insurance Policy Reportable?

A foreign life insurance policy is reportable when it has a surrender value or cash value.  It is important to note that the reportable value would be the surrender or cash value and not the policy face value — since the policy face value is not the current maximum value.

Are Foreign Investment Accounts Reportable?

Yes, and we can be difficult to ascertain the values — especially in situations where a person is trying to decipher the maximum value of a foreign mutual fund or SICAV by the NAV. In this type of situation, generally the best available value is used.

Is Foreign Stock Reportable on the FBAR?

Stock certificates are generally not included on the FBAR. Conversely, stock accounts are reported on the FBAR.

Is Foreign Cryptocurrency on the FBAR?

For now (pending new regulations), unless the account is a hybrid crypto/fiat account, a crypto account is not reported on the FBAR — although it may be required for Form 8938 (FATCA).

Which FBAR Exchange Rate do I Use?

FBAR filers can use any exchange rate that is considered reasonable.  The two most common exchange rates filers use are the average exchange rates published by the Internal Revenue Service and the exchange rates published by the Department of Treasury.

What if I already Filed Form 8938?

 Just because a person filed Form 8938 in a given year does not exempt them from filing the FBAR in the same year.  Some accounts are required to be disclosed on both forms, while other accounts and assets may only be required on one of the forms — and duplicate reporting is common.

Does a Business file FBAR?

Yes, businesses such as corporations, partnerships, and joint ventures may also have to file the FBAR if they meet the threshold requirement for reporting.

Does a Trust file FBAR?

Yes, if a trust has a foreign account(s) associated with it, then the trust must disclose the foreign account(s).

Does an Estate file FBAR?

Yes – and with estates, it can get very complicated because there may be a requirement for the decedent, the estate, and also the beneficiary.

What if a Decedent Had Foreign Accounts?

If the decedent had foreign accounts, it is important to try to determine if the decedent also had an FBAR filing requirement — and if so, was the decedent in compliance for the prior years? Ideally, this should be completed before filing the decedent’s final tax return.

Non-Willful vs. Willful Penalty

The majority of penalties are civil in nature (versus criminal). Civil penalties can be broken down further into non-willful and willful penalties.  While the penalties can be tough — and online fear-mongering is rampant — it is important to note that not everyone gets hit with willfulness penalties. We have separate resources to guide you on Penalties.

Can I Dispute the Penalty in Tax Court?

No.  FinCEN Form 114 is not a tax form. Rather, it is an international reporting form and the penalties associated with the FBAR are not tax liabilities. While you cannot dispute the penalty in Tax Court, you have the right to pursue the matter in Federal Court.

What about Double-Counting FBAR Account Values?

This is probably the single most common question we receive.  Let’s say you have $100,000 in an account that you transfer five times, into five different accounts. On the FBAR, it will look like you have $500,000, instead of $100,000. Remember, the Form is not used to report the total amount of money you had overseas. Rather, it is used to report the maximum value of the different accounts you have.  It is common to transfer money over different accounts and that does not presume that the total balances on the FBAR represent the total amount of money the filer has.

What if I Made a Mistake?

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.

FBAR Filing Examples

While FBAR reporting can get complicated (especially if the Taxpayer is out of IRS foreign account compliance), once the Taxpayer gets the hang of it, it just becomes another over-burdensome form the Taxpayer must file each year in addition to their regular tax return (the FBAR is not part of the tax return filing). Let’s go through some common examples of FBAR reporting. *For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.

Bank Accounts

Many situations will warrant the Taxpayer to have to file the FBAR when they are the owner of a bank account:

• • • Example: David has 15 foreign accounts for a total value of $180,000. 12 of the accounts are active and three of the accounts are dormant, with less than a few dollars in each of them. All 15 accounts are reportable on the FBAR.

    • Example: Dean has nine accounts, but they are all located at the same Foreign Financial Institution. Even though all nine accounts are located at the same foreign financial institution, Dean must report all nine accounts on his FBAR.

    • Example: Deborah had four foreign accounts, but she recently closed all of them in the current year. Even though Deborah closed the accounts in the current year, she still must report all the accounts on the FBAR because at one point during the year the total annual aggregate value of the accounts was $600,000.

    • Example: Dianne has seven accounts, but it is the same $200,000 transferred into a new different account every six to eight weeks (in order to take advantage of increasing interest rates). Even though it is the same $200,000 that was transferred to different accounts throughout the year, Dianne must report all seven accounts on the FBAR. That is because the FBAR is not used to report the total amount of money the Taxpayer has, but rather to report the maximum value of each of the different accounts throughout the year.

    • Example: Dustin has 31 accounts of which he is the owner of and has no signature authority accounts. Dustin must identify on the FBAR that he has more than 25 accounts and prepare the supplemental FBAR form for his records.

Pooled Funds (Account vs No Account)

Pooled funds such as foreign mutual funds and ETFs are reportable for FBAR purposes, but the extent of the reporting will be determined by how those funds are being held:

• • • Example: Scott has 27 different mutual funds, but they are all located in a single account under one account number. For purposes of the FBAR, Scott will report the main account number and the total value of all the assets under that account — but for purposes of IRS Form 8621, Scott will report each fund separately.

    • Example: Steven has 13 different foreign ETFs, but they are not contained in a single account. Instead, he owns each fund individually. For FBAR purposes, Scott will list out each fund separately.

Foreign Life Insurance Policies

Some foreign life insurance policies are reportable as well — depending on whether they have a cash or surrender value or not:

• • • Example: Peter is the owner of a life insurance policy that has a face value of $800,000 and a current cash/surrender value of $250,000. Peter will report the surrender/cash value of the policy on the FBAR.

    • Example: Penelope is the owner of an insurance policy that has no cash or surrender value. Generally, this type of policy is not reportable for the FBAR, although exceptions and exclusions may apply.

    • Example: Parker is listed as a beneficiary on an insurance policy which he does not own and does not have any control or financial interest in. Parker typically is not required to report this type of insurance policy because he is not the owner.

Foreign Pension Plans

A few years back the IRS published some ambiguous information about the requirement to report foreign pensions on the FBAR. In short, foreign pension plans are generally reportable for FBAR (and FATCA):

• • • Example: Brian has a foreign pension plan through his prior employer when he lived abroad. He has not made any contributions to the plan in several years (since becoming a U.S. person) and has not yet received any distributions from the pension plan either. The pension plan is still reportable on the FBAR.

    • Example: Brenda has a personal foreign pension plan that she purchased when she was living overseas. Over time, the value of the pension plan grew significantly (although Brenda has not made any contributions or received any distribution since becoming a U.S. person). Brenda is also required to report the pension plan on the FBAR.

Signature Authority Accounts

Unlike Form 8938 (FATCA), for FBAR reporting purposes, a Taxpayer must include accounts even if they do not have a financial interest in the account but only have signature authority over the account:

• • • Example: Charlie was listed as a signatory on a bank account that his grandma owns in a foreign country. He does not have any ownership over the account and has not made any contributions to the account. Charlie is still required to report the account on his FBAR.

    • Example: Chris works for a company that operates in various foreign countries and the company listed Chris as a signatory on these accounts so that he can issue checks to employees and vendors worldwide. Even though Chris did not open the account and does not have any ownership of the funds in the account, he is still required to report the account on the FBAR.

    • Example: Caroline recently started her own business and opened a few foreign accounts under her business — and listed herself as a signatory. She does not own the accounts herself and the contributions to the accounts were made directly by the business. Since Caroline is a signatory on these accounts, she is required to report the accounts on the FBAR.

Social Security

Accounts in foreign countries that are Social Security equivalent are generally exempt from FBAR reporting.

The Tip of the Iceberg

The goal of this article is to help clarify some of the basics of FBAR reporting. Reporting foreign assets to the U.S. tax authorities can be very complicated, especially when it involves additional items such as foreign life insurance policies, foreign corporations, foreign partnerships, and transactions between U.S. persons and foreign companies. Taxpayers should try to stay in compliance if they are already in compliance or should consider getting into compliance if they have not properly filed the necessary reporting forms if for no other reason than the fact that the IRS has made offshore compliance a key enforcement priority and has been issuing fines and penalties for non-compliance. 

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or 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 who 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.  *This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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