A Detailed Background on the FBAR Form

Aug 23, 2017

The FBAR reporting requirements arose from the Bank Secrecy Act of 1970 ("BSA"), in contrast to the Form 8938, which arose out of the Foreign Account Tax Compliance Act ("FATCA") as a result of congressional concerns regarding international tax noncompliance. The BSA attempted to address broader congressional concerns regarding offshore banking, with its stated purpose "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism" (source: 31 U.S.C. §5311). The preamble to the Treasury regulations promulgated under FATCA noted that different policy considerations apply to Form 8938 and the FBAR Form. Although some information required by the forms may be duplicative, in many cases, different categories of persons are required to file the forms, different thresholds apply, and different assets and information are required to be reported on each form (source: Preamble, T.D. 9657). The foreign bank account reporting requirement can be traced back to 31 U.S.C. Section 5314, which requires that U.S. residents or citizens keep records and file reports when the resident or citizen "makes a transaction or maintains a relation for any person with a foreign financial agency." The reporting form is an FBAR, which is filed electronically with FinCEN. The specific requirement for filing an FBAR is found in 31 C.F.R. Section 1010.350:

"Each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314 to be filed by such persons."

It is important to note though, that U.S. persons described in 31 C.F.R. Section 1010.350 only must report foreign financial accounts if their aggregate maximum values exceed $10,000 at any time during the calendar year (source: 31 C.F.R. §1010.306(c)). This filing threshold is much lower than for Form 8938, which for single individuals (and, after Dec. 31, 2015, for certain domestic entities) starts at $50,000 on the last day of the tax year, and can be as high as $600,000 for married individuals living abroad (source: Regs. Sec. 1.6038D-2(a)(1)). However, similar to Form 8938, the FBAR's $10,000 threshold is an aggregate maximum value determination; it is not on an individual account-by-account basis. Thus, an individual could have multiple foreign bank accounts, securities accounts, or retirement accounts, each of which is under the $10,000 threshold, but if they total more than $10,000 at any time during the calendar year, they all must be reported on an FBAR. The FinCen FBAR instructions give detailed guidance for properly computing the aggregate maximum values. The maximum value of each separate account (in the relevant local currency) must be determined; the "maximum value" is a reasonable approximation of the greatest value of currency or non-monetary assets in the account during the year (source: FBAR instructions, p. 10). An account holder can rely on periodic account statements, provided they fairly reflect the maximum account value during the year. Local currency must be converted to U.S. dollars using the applicable Treasury Financial Management Service rate applicable for the last day of the calendar year. (If that rate is not available, the instructions permit the use of another verifiable exchange rate, so long as the source of the rate is provided.) If the aggregate maximum values for all accounts exceed $10,000, an FBAR must be filed. Unlike Form 8938, which is filed with the tax return, an FBAR is filed electronically through the BSA E-Filing System, which is online. For reporting years before 2016, the FBAR must have been received by June 30 of the year immediately following the calendar year being reported (no provision was made for extensions) (source: FBAR instructions, p. 4.). However, for tax years beginning after Dec. 31, 2015, the due date of an FBAR is April 15 of the following year, with a maximum six-month extension allowed (source: Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, §2006(b)(11).).  To quickly and easily determine the likelihood that you have an FBAR and/or Form 8938 reporting obligation, try out the FBAR Wiz app above by clicking "get started."