- Foreign Account Reporting Requirement
- Financial Crimes Enforcement Network
- Penalties for Failure to File
- Type of Accounts Affected
- Form 8938 Filing Requirements
U.S. citizens and residents with a financial interest, signature, or other authority over any foreign financial account need to report that relationship by filing FinCEN Form 114 if the aggregate value of the accounts exceeds $10,000 at any time during the year. The due date for 2018’s report was April 15, 2019, with an automatic six-month extension to October 15, 2019. Failure to file can result in draconian penalties. Form 114 is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) BSA E-Filing System and not as part of the individual’s income tax filing with the IRS.
Keep in mind that “financial account” includes securities, brokerage, savings, checking, deposit, time deposit, and any other accounts at a financial institution. Commodity futures and options accounts include mutual funds, and non-monetary assets such as gold. It becomes a “foreign financial account” if the financial institution is in a foreign country. If you own shares of a foreign stock or a mutual fund that invests in foreign stocks, and the stock or fund is held in an account at a financial institution or brokerage located in the U.S., this is not considered a foreign financial account. In addition, the FBAR rules don’t apply to it. An account maintained with the branch of a foreign bank physically located in the U.S. is not a foreign financial account.
You may have an FBAR requirement and not even realize it. For instance, perhaps you have relatives residing in a foreign county and they have put you on their bank accounts in case something happens to them. If the combined value of those accounts exceeds $10,000 at any time during the year, you will need to file the FBAR. Or if you are gambling at an online casino and it is based in a foreign country, and your account exceeds the $10,000 limit at any time during the year, you will have an FBAR reporting requirement.
You may also have an additional requirement to file IRS Form 8938, which is like the FBAR requirement but applies to a wider range of foreign assets with a higher dollar threshold. If you are married and you and your spouse file a joint return, if the value of certain financial assets exceeds $100,000 at the end of the year or $150,000 at any time during the year, you must file Form 8938. If you live abroad, the thresholds are $400,000 and $600,000, respectively. For other filing statuses, the thresholds are half of those amounts. The penalty for failing to file the 8938 is $10,000 per year, and if the failure continues for more than 90 days after you receive an IRS notice of failure to file, the penalty can go as high as $50,000.
As you can see, not complying with the foreign account reporting requirements can have very serious repercussions. Please contact us with questions or if you need assistance in meeting your foreign account reporting obligations.