Living and working outside the United States as an expat can be a fascinating experience, but it also entails several tax responsibilities that many often overlook. One of the main ones is the Report of Foreign Bank and Financial Accounts (FBAR), which, if not properly completed, can result in severe penalties.

What is the FBAR?

The FBAR, officially known as IRS Form 114, is a mandatory report for U.S. citizens, tax residents, and expats who have foreign bank accounts with a combined balance exceeding $10,000 at any time during the tax year. Whether the accounts are in your name, your company's name, or the names of family members, the FBAR must be filed.

Who Must File the FBAR?

The FBAR is required for U.S. citizens and tax residents who meet the following criteria:

• Have a foreign bank or financial account (such as savings, investment, or trust accounts) that exceeds the $10,000 threshold at any time during the tax year.
• Be an owner, co-owner, or have authority over the accounts. This includes expatriates who hold accounts in their own name or business accounts abroad.
• Be a U.S. tax resident or citizen, even if they reside in another country.

This requirement also extends to those who have authorized signatures on foreign accounts, even if they are not the account owner. If you have control over or access to the funds, you must file an FBAR.

What happens if you don't file an FBAR?

Failure to file an FBAR or filing it incorrectly can result in severe penalties. The penalties for failing to comply with this obligation are high and vary depending on the severity of the omission:

• Civil penalty for failure to file: If it is determined that failure to file the FBAR was an intentional failure, the penalty can be up to $100,000 or 50% of the unreported account balance, whichever is greater.
• Penalty for late filing or negligence: If the failure was negligent and unintentional, the penalty can be up to $10,000 per unreported account.
• Criminal consequences: In cases of fraud or intent to evade taxes, criminal consequences can include imprisonment and additional fines.

Even if you don't believe your account balance is significant, failure to report can lead to costly consequences. The IRS has increased its efforts to detect and penalize FBAR noncompliance, especially with increasing globalization and the accessibility of foreign accounts.

How to file the FBAR?

The FBAR is filed electronically through the U.S. Department of the Treasury's BSA E-Filing System. It is a standalone form and is not filed with the federal tax return (Form 1040). However, the FBAR filing deadline is the same as the tax return filing deadline, April 15. If you miss this deadline, you can request an automatic extension until October 15, similar to the extension for tax returns.

When completing the form, you must include:

• Name and address of the foreign bank.
• Account number.
• Type of account.
• Maximum balance reached in the account during the fiscal year.

Exceptions and Special Considerations

While the FBAR has clear rules, there are some exceptions and important details to consider:

• Not all financial assets must be reported: The FBAR does not require you to report all foreign assets. For example, cash-value life insurance or foreign pensions are generally not subject to FBAR filing.
• Joint or business accounts: If you have joint or business accounts abroad, you'll also need to include them on the FBAR if the combined balance exceeds $10,000.
• Accounts in tax havens: The IRS pays special attention to accounts in countries with high risks of tax evasion, such as well-known tax havens. If you have accounts in these countries, make sure you comply with all the rules.

Finally, if you are an expat, the FBAR is a tax obligation you cannot ignore. Make sure you comply with this requirement to avoid severe penalties and keep your tax situation in order. If you have any questions, it is always advisable to consult with an international tax advisor to ensure proper compliance with all tax regulations.

At My Accounting Now, we can help you avoid any IRS fines. Schedule a consultation with our team by calling 786-228-8689 or emailing info@myaccountingnow.com