Register Now

What is FBAR?

FBAR, the Foreign Bank Account Report or Form TD F 90-22.1 is due by June 30th each year. Every “United States person” who has one or more foreign bank account(s) which at any point during the year reach an aggregate balance of over $10,000 is obliged to file a report with the US Treasury Department listing all foreign accounts.

You must report accounts you hold in foreign banks and other financial institutions if your total balance across all your accounts is $10,000 or greater at any time during the year. This is true both of accounts for which you are the owner and accounts over which you are not the owner but have authority to conduct transactions on behalf of the account owner.

Income generated inside of these foreign financial accounts is also reported on your income tax return in the year the income is earned. You'll report the foreign income based on the type of income being generated. For example interest and dividends would be reported on your Schedule B, capital gains on your Schedule D, and so forth. If you earn dividends or interest in these accounts, be sure to check the box in Part III Line 7a of Schedule B and indicate the country or countries where you have accounts. Additionally, any foreign taxes paid on your interest and dividends may qualify for the Foreign Tax Credit on Form 1116.

Who Must File an FBAR

United States persons are required to file an FBAR if:

The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and

The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

United States person means United States citizens; United States residents; entities, including but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.

Penalty for not filing FBAR

A civil penalty of up to $10,000 per account may be imposed if the non-filing is not willful.

The penalties for failure to file an FBAR are worse than tax penalties. Failing to file an FBAR can carry a civil penalty of $10,000 for each non-willful violation. This

penalty can be avoided if two conditions are met: (1) the failure to file was due to reasonable

cause, and (2) the balance in the account was properly reported on an FBAR.  Thus, if a

taxpayer had reasonable cause regarding its failure to file for prior tax years and it now files the

appropriate FBARs, the $10,000 penalty can be avoided. But if your violation is found to be willful, the penalty is the greater of $100,000 or 50 percent of the amount in the account for each violation—and each year you didn’t file is a separate violation. If the FBAR violation occurs while violating another law (such as tax law) the penalties are increased to $500,000 in fines and/or 10 years of imprisonment

While these penalties can be overwhelmingly high, there have been a host of Voluntary Disclosure Programs offered by the IRS that could potentially reduce or even eliminate the penalties noted above.

Zahid Reza, CPA offers  services relating FBAR filing , FBAR consulting and assistance in Voluntary Disclosure Programs