Many American expatriates living abroad and dual citizens are required annually to report foreign bank and financial accounts to the U.S. government on Form TD F 90-22.1, (often referred to as FBARs) and are required to pay U.S. tax on income of those foreign accounts, as appropriate. FBAR stands for Report of Foreign Bank and Financial Accounts (FBARs). This form is due by June 30 and no extension is allowed for this form.
This form is intended to help the IRS identify individuals with foreign accounts. It is one of the ways to find American citizens and green card holders who avoid paying U.S. taxes.
Who must file FBARs?
Americans living abroad must file FBARs if an aggregate value of foreign financial assets exceeds $10,000 at any time during the year. For example, if you have a $6,000 foreign checking account and another $5,000 foreign savings account, then you must file FBARs because the aggregate value exceeds $10,000.
Which accounts should be reported?
Financial accounts at foreign financials institutions are not the only accounts that should be reported. If you have a financial account at a foreign branch of a US financial institution (for example, you have an account at a Citibank branch in London), then this account should be reported on FBARs. Foreign mutual funds and foreign-issued life insurance or annuity contract with a cash value should be reported. Foreign hedge funds and foreign private equity funds are excluded. If you own a luxurious condo in Paris as well as art, antiques, jewelry, foreign currency and precious metals held directly, you should not report it.
What are the penalties?
American expats face severe penalties if they fail to file this form. There is a penalty of $10,000 for each negligent violation. In case of a willful violation a penalty can be up to $100,000 or 50% of the amount in the account. In some extreme cases like you willfully failed to file FBARs, you can face a penalty of up to $250,000 or a jail time up to 5 years.
Where should I file FBARs?
If you choose a regular post mail, then FBARs should be sent to:
Department of the Treasury
Post Office Box 32621
Detroit, MI 48232-0621
If you prefer an express delivery service, please use this address:
IRS Enterprise Computing Center
ATTN: CTR Operations Mailroom, 4th Floor
985 Michigan Avenue
Detroit, MI 48226
You should work with a tax professional who can help you with filing FBARs and resolving other US expat tax questions.