Articles & Alerts
FBAR FAQs: What You Need to Know
On February 28, 2023, the United States Supreme Court ruled in favor of taxpayers, in Bittner v. United States, 143 S. Ct. 713 (2013), regarding penalties assessed related to Report of Foreign Bank and Financial Accounts (FBAR). The decision was significant, as the FBAR (FinCEN Form 114) penalty provisions have long been a contentious issue among taxpayers, who have often faced exorbitant fines for noncompliance. The decision is expected to provide relief to taxpayers who have faced substantial penalties for FBAR noncompliance in the past, and could impact the way the IRS enforces FBAR requirements in the future. On July 6, 2023, the IRS issued guidance updating FBAR examination procedures. In essence, the ruling reduced penalties by holding that the $10,000 non-willful filing penalty cap applies on a per form basis, instead of a per bank and/or brokerage account basis, regardless of the number of unreported or incorrectly reported accounts. Additionally, mitigation provisions have been eliminated for non-willful FBAR violations and should no longer be considered in calculating penalties for non-willful violations. However, calculations of penalties for willful reporting violations remained unchanged.
Following Anchin’s alert on the subject in March 2023, Anchin’s Financial Services team has assembled the following FAQs to understand FBAR reporting, including filing deadlines and penalties.
What is the FBAR?
The United States Department of Treasury mandates that certain U.S. taxpayers annually file a Report of Foreign Bank and Financial Accounts (FBAR) disclosing their foreign financial accounts to the Department’s Financial Crimes Enforcement Network (FinCEN). The purpose of the FBAR is to help prevent tax evasion and money laundering by U.S. persons who maintain foreign financial accounts.
Who must file?
Individuals must report their foreign financial accounts if the combined value of such accounts exceeds $10,000 at any point during the calendar year.
There are several classes of people who are exempt from the FBAR filing requirement. These include:
- U.S. persons who are an entity named in a consolidated FBAR filed by a greater than 50% owner;
- Individual Retirement Account (IRA) owners and beneficiaries;
- Participants in and beneficiaries of tax-qualified retirement plans; and
- Trust beneficiaries, if a U.S. person (trust, trustee or agent) already reported the foreign accounts.
There are also certain foreign financial accounts that are exempt from the reporting requirement. These include:
- Accounts jointly owned by spouses (a spouse of someone filing an FBAR doesn’t need to file);
- Correspondent or Nostro (used solely for bank-to-bank settlements) accounts;
- Foreign financial accounts of any government entity; and
- Foreign accounts owned by an international financial institution.
What is the due date? Is there an extension?
The Form 114 is due by April 15th, but there is an automatic extension. Therefore, if an individual did not file the FBAR by April 15th, they still have until October 15th to file. The taxpayer does not have to file a form to obtain the FBAR extension as it is automatically granted.
Are there any penalties involved?
While the Supreme Court’s latest ruling provides that taxpayers who fail to file FBAR forms for their foreign bank accounts cannot be subject to excessive fines, individuals can still be subject to civil or criminal penalties.
Civil FBAR penalties may be imposed on individuals who willfully or non-willfully failed to file the FBAR. The Bittner decision limited non-willful penalties to $10,000 per form as opposed to the per account assessments that had previously been enforced. With regard to willful penalties, it is important to note that to prove willfulness, the U.S. government only needs to prove that the taxpayer acted with reckless disregard. In other words, no intent on the individual’s part is necessary. This underscores the importance of having a trusted financial advisor to keep an individual informed and avoid such situations. Willfully failing to file, or falsely filing, the FBAR could also result in criminal penalties of up to $10,000, 5 years in prison, or both.
Please contact Anchin Partner Gwayne Lai or your Anchin Relationship Partner to answer any questions you may have about FBAR filing.