Foreign Bank and Financial Accounts Reporting

Foreign Bank and Financial Accounts Reporting

 

Preface: Foreign financial and bank account reporting is becoming increasingly relevant with global investments. This blog is written to help you appreciate the importance of compliance with FinCEN and FBAR.


 

 

So you have a bank account in Hong Kong, or a brokerage account in Shanghai, or maybe you’re an investor in GoldMoney.com. Welcome to the Bank Secrecy Act, FinCEN and compliance with FBAR.

 

Reporting of Foreign Bank and Financial Accounts (FBAR) now requires reporting of financial interests or signature authority on accounts outside the US that have an aggregate maximum value of $10,000. If you have 1 or more, say 5 foreign bank accounts for diversification of your currency portfolio, with cash in banks in China, Japan, Germany, Australia, Canada, or New Zealand with an aggregate, or combined, balance in excess of $10,000 during the tax year, you need to report those accounts with FinCEN Report 114. Other accounts that with require reporting i) security accounts ii) commodity accounts iv) insurance policies with cash value v) mutual funds vi) checking accounts vii) other accounts, i.e. Canadian Registered Retirement Savings Plan, or Canadian Tax-Free Savings Account.

 

Maybe you decided to open a brokerage account in Canada, or invest in a Canadian business interest, you’re subject to FBAR even if the foreign financial account produces no taxable income. There is no minimum age reporting requirement either. So if you have accounts outside the country in your children’s name, you will need to report those accounts with a FinCEN Report 114 too. Nonetheless, accounts that are located in US branches of foreign banks, say, a New York branch of Bank of China are not subject to FBAR.

 

FBAR is required to prohibit the concealment of foreign assets from the IRS. Do not willfully violate FBAR reporting. Penalties for no willful negligence can begin at $10,000 for each violation, and reach the greater of $100,000 or 50% of the account value at time of violation. If you have foreign accounts, make certain you’re in compliance with FBAR.

 

A financial interest in a foreign account includes being an owner of record, holder of legal title, or signature authority. So if you’re acting as an agent on behalf of another person, e.g. power of attorney, you must too comply with FBAR. A financial interest also include owning more than 50% of voting shares of stock in a corporation, or more than 50% of the total value of shares of stock. A Pennsylvania business, say Local Investors, LLC that owns 100% of a Canadian business that has financial accounts in Canada, must comply with FBAR; its ownership exceeds 50% of the value of the business. If you, in addition, own 65% of Local Investors, LLC you have a FBAR reporting requirement, because you own more than 50% of the total value of a foreign business with foreign accounts.

 

If multiple persons own partial interests in foreign accounts that have an FBAR reporting requirement, each person must file and report the entire value of the account on a FinCEN Report 114; complying with FBAR. Modified reporting requirements are effective when reporting interests in 25 or more foreign financial accounts. Special exemptions for foreign accounts in IRAs, exclude IRA owners and beneficiaries from reporting IRA foreign accounts.

 

Records for accounts with FBAR reporting should be maintained for five years from the due date of the report. FBAR filings are due June 30th, of year following the calendar year being reported. No extension is available for FBAR filers. FBAR is not an IRS filing; it is a FinCEN filing, regulated by the IRS.

 

Summary: Foreign Bank Account Reporting compliance is mandatory if you have an interest in a foreign financial account. If FBAR reporting is applicable to your personal or business interests, talk with your CPA to keep compliant; and make sure all reports  are filed before June 30th.