What is FBAR and How to File for It?

The world has become a closed space and with permission to have multiple bank accounts to stash in your gross hard-earned income through multiple ways and even by forfeit has kept your head easy! Rather than hold up all the surplus amount in one place, today there is an option to store and protect it in my banks provided you follow the prerequisites.

It’s fairly normal to save or regenerate your bucks of dollars via multiple streams of income. As many people understand this being a regular normal and has no hassles, almost all younger lot, particularly of Gen Y and Gen Z have wanted to have at least some time outside their native place and explore other lands more.

Do you want to study at the Massachusetts Institute of Technology or get a high-profile job in the Big Four? In this era of modernization and digitization, nothing is out of reach! You can even discard current citizenship and opt for US citizen because of multiple reasons. You just think and it will happen within a few days provided you follow a standard protocol.

What is FBAR? In layman’s terms, FBAR stands for Foreign Bank Account Report, and according to Fincen 114, it is nothing but a Report of Foreign Bank and Financial Accounts.

Why FBAR?

The FBAR was introduced in the United States of America and is mainly applicable to US citizens. So, if you have acquired US citizenship after a substantial stay with completion of education and a high-experienced job or have a US nationality since birth, you are liable to file FBAR. Apart from this, if you work in a multinational conglomerate and have been deployed at a branch of the firm which is located in a foreign location apart from your nationality, it is obvious you would have multiple bank accounts.

Therefore, under the U.S. law, called as Bank Secrecy Act, it is expected that you must briefly report financial accounts, particularly those which are foreign. This may include your mutual funds, brokerage accounts and the most important bank accounts to US Treasury Department and even keep records of these certain accounts. This is done by filling FBAR.

Who Files FBAR?

If you are a U.S. national who resides in the USA or works abroad, every citizen of the American nationality, including U.S. citizens, resident aliens and green card holders have to compulsorily fill FinCEN Form 114 – provided he/she is the owner, nominee or has control over distribution the monetary funds of the account. Moreover, there is another clause for this law which is if the total combined balance of all your foreign bank accounts comprises more than $ 10,000 irrespective of the date on the calendar, you must first give priority to file FinCEN Form 114.

In layman’s terms, to understand this in a simplified way, let us take an example.

Imagine you are U.S. national but currently reside in Brazil due to family or work commitments. This means you have more than 2 bank accounts – one is your native and another account in a Brazilian bank. Now assume, both these together held an amount of $15,000 during 2019 which implies that you ought to file FBAR for the year 2019 even though each account withholds an amount of $5000 only.

So, what to include in FBAR? In layman’s terms, your accounts that are outside the states of U.S. the U.S. possessions, D.C. and even the tribal territories will be regarded as “foreign accounts”. The only exemption to this law is officially recognized by the US government – the Nostro or correspondent accounts, and those under the name of US governmental entities. To understand this more clearly, let us check what is to be disclosed in FBAR –

1. Financial instruments accounts, bank accounts and securities
2. Investment in commingles funds – mutual funds, and even the accounts that the concerned individual has on the equity interest in the fund.
3. Foreign Online Gambling Accounts – IRS
4. Foreign life insurance/annuities involved in cash surrender value
5. Personal bonds, stock certificates, notes and unsecured loans are exempted from “accounts”

What is the correct time to file it?

As per US standard, you should do the FBAR annual report by April 15 following the calendar year you have reported on increased bank accounts and their combined sum. In case you fail to meet this deadline, there is an automatic extension till October 15 and there is no need of issuing an extension request.

In an extreme case, if you are a survivor or fighter of a natural calamity, the government will take into consideration the unforeseen circumstances and will duly extend your FBAR filing. In this case, it is of utmost necessity to check and review the relevant Relief Notices to have authenticated and complete information about FBAR.  

For certain employees or officers with signature or other authority over, but no financial interest in certain foreign financial accounts, the 2018 FBAR due date is deferred to April 15, 2020.

Keep the following things in mind when you start filing FBAR –

1. FBAR and tax are two different things
2. The last date of submission is usually 30th June
3. Even if you haven’t earned a single dollar the next year once you start doing FBAR, you still have to file and report it every year.
4. You must keep in mind that a single high payday also matters.

It means that even if you have earned just $10,000 for a day in the current or next year, you need to start filing and also not misinform the concerned authorities of your high monetary transactions. When it comes to matters related to money, it’s always better to be transparent about your transactions instead of being caught in fraud or malpractices later.

Also, the concerned authorities can demand an explanation about your money transfer or a huge amount being debited and credited between your 2 bank accounts.

Another vital perspective regarding FBAR is not to overdo your earnings and exaggerate your assets. Always make accurate and appropriate reporting, and don’t worry about its tax as this would be already listed in your income tax return.

Authenticate Signature of a Professional Authorities Person

When you file FBAR, you should have an authentically signed document who is your confidante on your to-be filed document or financial interest in the foreign bank who will give testimony or qualify for your account in the same bank under FBAR.

This signature authority or financial interest plays a crucial part in your FBAR

For instance, you can give the signature authority to a person who has no financial interest in your bank. In simplest words, a CFO of an organization might have signature authority over the organization’s bank account. This is how the whole firm usually progresses because you cannot be just seated if the alternative signing authority is on leave. In addition to this, assume you are employed in another branch of your firm which is not in the US, but the CFO is at US headquarters – then in such cases, both concerned professionals of the 2 branches will have signature authority over it. Moreover, he will be entitled to give a personal FBAR where he has to mention this statement of signature authority over the firm’s document in which he has no personal gains and is solely related to the organization.

One more rule to bear in mind is to file this every year even if you have no one to give a signature authority as it is the rule of US law

In this case, if you are Indian American and also the founder of an Indian startup that is making huge enormous profits, then whether you are directly or indirectly involved with the functioning of your small firm, you are deemed to have financial interest even if its through attorney or some other corporate professional. Hence, you need to do the filing and for further clarifications, you can instructions regarding Financial Interest to FBAR.

Joint Accounts and Power of Attorney

If you have a joint Account with your spouse or parents, then the person in the US would be filing FBAR providing all other conditions are duly met. The exceptions here are –

1. You are a US citizen but your wife is of another nationality – then only US citizen means you will do the procedure; the wife may not be involved with this whole process
2. When both wife and husband are US citizens, there must not be 2 separate filings if you meet the following criteria –

• All the details of financial accounts jointly owned by the couple will be reported by husband/wife filling the form
• The person doing FBAR will report the joint accounts regularly in FBAR
• Both husband and wife would do their signature at required places like Item 44, and even check the explanations when required for specific Items, Items 25 to 33 and even Part III. If you do not abide by these rules and regulations, you both, husband and wife will do separate filings and report all the dollars on both forms.

In addition to this, if you are an attorney or nominee for another person, then even you have to fill this form.

1. When you are filing an FBAR, you need to mention all the dollars and funds you have under your name. This includes PE Funds, Hedge Funds and others for which you need to follow the procedure includes –
2. Savings account, Bank Fixed Deposit
3. Mutual funds
4. Insurance policy with bank’s cash surrender value
5. Brokerage & securities account
6. Options account or the commodity futures
7. Annuities cash value

Now as per the rule, if the total of all this exceeds USD 10,000, it means you need to file FBAR. To understand the rate conversion, you can always refer to the Financial Treasury Management Service rate which can be found on www.fms.treas.gov  

Failure to file FBAR can attract and land you with huge penalties

Unless you show a reasonable cause, which made you forget to fill this every year, it can lead to a huge penalty that will wipe you out of your fortunes. This would be then be imparted as a punishment and you would be made to fill the FBAR for all the impending years which can be 2 to 5 and even more if you have not filled for a long duration.

Mistake or forgot to give the correct answer for the last checkbox in your income tax return for the relevant question on Form 1040

An error in the checkbox of other financial positions in an income tax return or forgetfulness in a haste due to other commitments can land you in trouble if there is a verification exercise carried out by the concerned professionals of the US government. To avoid such mishaps, it is always better to consult a tax consultant on how to amend the errors or get guidance about Form 1040 before you submit the FBAR papers.

Most Common Mistakes and why care about FBAR filing?

FBAR was created to identify cheats and frauds done by an individual by hiding lots of money in foreign accounts. As the law is revised with more stringent rules and regulations, missing to file one year report can result in heavy penalties which can even leave you bankrupt. The worst thing is if you have a horrendous fight with the US expat and show rude behaviour, it can lead to hefty penalties and even other legal consequences which can derail the wheel of your life. Hence, stay compliant with your FBAR requirements. Record keeping is the most essential part of FBAR. Maintaining good and punctual records can ease your form filing and also keep you stress-free from the last minute FBAR obligations.

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The software’s built-in financial reports reduce your work latency and dependency on paperwork and give accurate data required for government tasks. With Deskera, you would get better insights to make thoughtful decisions and also assist to keep a complete audit trail which means keeping correct track of transactions, audits, financial transactions and activities which is the foundation to fill appropriate FBAR form.

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