What is FBAR? Who must file FBARs?

By Expat News

What is FBAR? Should I file FBARs in my situation? This is the latest email from one of our clients. “I am an American living abroad. I am a US citizen. My wife is a green card holder and a foreign citizen. I filed my expat tax returns but didn’t know that I have to file FBARs. Could you explain to me what is FBAR and whether I have to file FBARs. I plan to close my accounts.”

Some American expatriates living abroad think that tax software can easily help them prepare expat tax returns. Unfortunately, this software doesn’t take into consideration the intricacies of the US expat tax law. Moreover, this software does not advise you about the expatriate tax forms that you have to file. American expats face harsh penalties for a failure to file many tax expat forms.

The purpose of this article is to address two key basic expatriate tax questions: What is FBAR? Who must file FBARs?

What is FBAR?

FBARs are the Reports of Foreign Bank and Financial Accounts or the Treasury Form TD F 90.22.1. Although, the FBARs have existed since 1970, the FBAR was one of the forgotten federal forms that nobody heard of until 2003. In 2003 the IRS received a full authority to assess and collect FBAR penalties.

Who must file FBARs?

United States person must meet 2 requirements:

  1. United States person must have a financial interest or a signatory authority in a foreign financial account located outside of the USA.
  2. The aggregate value of these foreign financial assets must exceed $10,000 at any point of time during the year.

Let’s look at the FBARs example.

Example 1. Steve moved to Monaco and decided to open an account in Monte Carlo in 2011. He has been a loyal customer of Citibank back in NYC so decided to open a financial account with Citibank again. The starting account balance was $150,000. Steve didn’t know that he had to file the FBARs in addition to expat tax returns because the account was with Citibank. The answer is that Steve has to file the FBAR for two reasons. First, although, Citibank has its headquarters in the USA, the accounts at its foreign branches are considered foreign accounts and must be reported on the FBAR and expat tax returns. Second, the balance of Steve’s account exceeds $10,000 during the year 2011.

Who is United States person?

American expatriates living abroad are not the only ones who are considered United States persons.

United States person includes the following categories:

  1. US citizens
  2. US residents
  3. Entities organized under the laws of the USA:
  • Corporations
  • Partnerships
  • LLCs
  • Trusts
  • Estates

For example, Vishnu moved from India and has been working in the USA for 3 years. He is a green card holder. Vishnu has several financial accounts in Delhi and the value of these accounts was over $50,000 in 2011. Vishnu has to file the FBARs because he is considered a US resident and the aggregate value of his financial assets exceeds $10,000.

If you need help with FBARs, expat tax returns or you have other expatriate tax questions, please contact the firm that provides international tax services. International tax experts at Artio Partners are here to help you.