FBAR Filing: Key Requirements and Common Pitfalls

The FBAR, officially known as FinCEN Form 114, must be filed by individuals, trusts, estates, or business entities that meet the following criteria:

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• U.S. Person Status: This includes U.S. citizens, residents, and certain domestic entities.

• Foreign Account Ownership: A financial interest in, or signature authority over, one or more foreign accounts.

• Account Threshold: The aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

Foreign accounts can include bank accounts, brokerage accounts, mutual funds, and other financial assets held outside the United States.

Navigating FBAR filing can be challenging, and mistakes often result in costly penalties. Some of the most common pitfalls include:

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• Missing the Filing Deadline: The FBAR is due annually on April 15, with an automatic extension to October 15. Missing the deadline can lead to steep penalties.

• Underreporting Foreign Accounts: Overlooking accounts or misreporting balances is a common error. It is crucial to include all foreign accounts, even those with minimal balances.

• Failing to Report Joint Accounts: U.S. persons with joint ownership of foreign accounts must ensure those accounts are reported, regardless of who manages the account.

• Misunderstanding Signature Authority: Even if no financial interest exists, signature authority over a foreign account still triggers FBAR filing requirements.

• Overlooking Account Types: Accounts such as foreign pension funds, investments, and life insurance policies with cash value are often mistakenly omitted.

The penalties for failing to file an FBAR can be severe:

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• Non-Willful Violations: Up to $10,000 per violation.

• Willful Violations: The greater of $100,000 or 50% of the account balance.

Recent court decisions, such as Bittner v. United States, have clarified that penalties for non-willful FBAR violations are applicable on a per-form basis, not per account. This landmark decision provides significant relief to taxpayers by capping penalties, even for multiple accounts. However, it remains essential to address any non-compliance promptly. For more details, you can read about the case here. The IRS also has streamlined procedures in place for taxpayers who failed to file FBARs due to non-willful reasons.