2021 Reporting of Foreign Bank and Financial Accounts (FBAR) - The Who, How, and When:

tax article

By Akiva Schreiber

Who Needs to File:

A U.S. person that has a financial interest in or signature authority over, one or more foreign financial accounts whose aggregated value exceeded $10,000 at any time during the calendar year.

The definition of a U.S. person is someone who is a citizen or resident of the United States (including U.S. territories and possessions) or any legal entity such as a corporation, partnership, or trust that was created or organized in the U.S.

Accounts held by a U.S. bank physically located outside of the United States is considered a foreign financial account. Conversely, an account maintained by a non-U.S. bank physically located in the United States is not a foreign financial account.

Foreign financial accounts held in an individual retirement account (IRA) you own or are a beneficiary of, or accounts held in other types of retirement plans, do not need to be reported.

How to Report:

The FBAR should be filed electronically on FinCen Form 114 and must report the greatest account value at any point during the calendar year. If that amount of currency is held in anything other than U.S. dollars, then a conversion to U.S. dollars for valuation purposes should be made using the exchange rate on the last day of the calendar year. This rate is otherwise known as the Treasury Financial Management Service rate.

If an account is jointly held, then each person has a financial interest in that account and must report the entire value on their own FBAR filing. Spouses do not need to file a separate FBAR filing if all of the reportable accounts are jointly owned with the filing spouse, are reported on a timely-filed FBAR, and the non-filing spouse signs Form 114a, Record of Authorization to Electronically File FBARs.

Children are required to file their own FBAR. A parent or legal guardian should do so on their behalf if they cannot do so on their own.

When to Report:

The filing has the same due date as personal tax returns (typically April 15th) and qualifies for an automatic extension of six months (due October 15th) if not filed on time. There is no need to request an extension to file the FBAR.

There are potential civil and criminal penalties for those who don’t file the FBAR. For a willful violation, the largest civil penalty is the greater of $124,588 (adjusted for inflation) or 50% of the balance of the account at the time of the violation. Criminal violations can result in a fine of up to five years in prison.