FBAR Basics & Common Missed Filing Situations

FBAR Basics: Foreign Account Reporting For U.S. Businesses &  Individuals

If you have cash, signing authority, or ownership connections outside the United States, you may have heard about the FBAR and its reporting requirements related to bank accounts.

FBAR stands for Report of Foreign Bank and Financial Accounts, which is a separate reporting requirement outside of your income tax return to be reported on FinCEN Form 114. In general, a U.S. person must file the FBAR if they have a financial interest in, or signature,  or other authority over  foreign financial accounts,  and the total aggregated value of those accounts is greater  than $10,000 at any time during the reporting calendar year.

The FBAR rules can apply to both individuals and businesses. They can also apply in situations where a person does not personally own the foreign account but has signature authority over it, or owns a controlling interest in an entity that owns the account. Because of this, FBAR obligations are often missed even when the taxpayer is otherwise aware of requirements.

What U.S. Businesses & Individuals Should Know

The FBAR is required for U.S. persons, which generally includes U.S. citizens, U.S. resident aliens, and entities such as corporations, partnerships, trusts, and LLCs.

A few key points are worth keeping in mind:

• What is signature authority? For FBAR purposes, signature authority generally means the authority of an individual, alone or with another person, to control the disposition of money, funds, or other assets in a foreign financial account by direct communication with the financial institution. In practical terms, this can include officers, employees, finance personnel, treasury team members, or other authorized signers on a company’s foreign bank account.
• The $10,000 threshold is aggregated. FBAR reporting applies if the total value of all reportable foreign financial accounts exceeds $10,000 at any point during the year.
• Foreign means the account is located outside the United States. For example, an account at a foreign branch of a U.S. bank can be a foreign financial account, while an account at a U.S. branch of a foreign bank generally is not considered foreign.
• The due date is generally April 15, with an automatic extension to Oct. 15. No separate extension request is required if your tax return is timely extended by April 15.
• The FBAR is not filed with your tax return. FinCEN Form 114 is filed electronically through FinCEN’s BSA E-Filing System; however, it is often filed at the same time as your tax return and is often included in the same filing package that you receive.

Common Situations Where FBAR Filing Gets Missed

Many FBAR issues do not arise because someone intentionally ignored the rules. They often arise because the filing requirement is broader than expected and often easily missed.

1. Signature Authority Without Ownership

One common missed situation involves an individual who has signature authority over a foreign account but no personal ownership interest in the  account. This occurs most often where an officer has signature authority over a business’ foreign bank account(s).

2. Financial Interest Through Entity  Ownership

Another commonly missed situation involves a U.S. person who does not directly own the foreign account but owns a controlling interest in an entity that does. These situations often arise when an individual owns directly or indirectly greater than 50% of a business, trust, or other entity with a foreign financial account. This means that a U.S. owner of a foreign or domestic business entity may have an FBAR filing obligation even if the foreign bank account is titled only in the entity’s name.

Where Late FBAR Filing Procedures Fit

If you discover that a  FBAR should have been filed for a prior year, do not ignore it. There are procedures for submitting delinquent FBARs, but the right path depends on the facts.

Typically, if reasonable cause is shown, which generally requires showing that the taxpayer exercised ordinary business care and prudence but was still unable to comply on time, the IRS will waive penalties; however,   the IRS has recently indicated that it will no longer automatically waive these penalties as routinely as in the past. This point makes it important to be certain that all reporting statements and schedules are included when the late FBARs are actually filed.

Simple Applicability Checklist

Ask these questions each year:

1. Did you have any foreign financial accounts during the year? This may include foreign bank, securities, brokerage, certain insurance, annuity, or similar accounts.
2. Do you have signature authority over a foreign account, even if you do not own the money? If you can direct transfers or disposition of funds by communicating with the financial institution, an FBAR obligation may exist related to this authority.
3. Did the total value of all foreign financial accounts exceed $10,000 at any time during the calendar year? Remember, the test is based on aggregate value.
4. Do you own more than 50% of an entity that owns a foreign account? Direct or indirect ownership of more than 50% of certain corporations, partnerships, trusts, or other entities can create a financial interest in the entity’s foreign accounts.

How GBQ Can Help

Navigating FBAR reporting does not have to be overwhelming. GBQ's international tax professionals can help you determine whether these rules apply to your business, clarify your tax obligations, and build a practical plan for compliance. Contact GBQ today for a professional review of your international tax obligations.

By Jackson Howard, CPA, Senior, Tax & Advisory