FBAR Filing: Who Must File, Why, and When

Introduction

The Report of Foreign Bank and Financial Accounts (FBAR), required under the Bank Secrecy Act of 1970 (BSA), mandates U.S. persons with interests in foreign financial accounts exceeding a certain threshold to report this information annually to the Department of the Treasury. This disclosure helps combat tax evasion and improve financial transparency. Below, we explain who must file an FBAR, the reasons for this requirement, and its annual deadlines.

Who Must File the FBAR?

General Rule

A U.S. person must file the FBAR (via FinCEN Form 114) if both of the following conditions are met:

  1. Financial account requirement: The U.S. person has a financial interest in or signature or other authority over at least one foreign financial account located outside the United States.
  2. Aggregate value threshold: The combined value of all such foreign accounts exceeded $10,000 at any time during the calendar year.

(31 U.S.C. § 5314(a); 31 C.F.R. § 1010.350(a)).

Who Qualifies as a U.S. Person?

A U.S. person is broadly defined and includes the following:

  • Individuals: U.S. citizens, lawful permanent residents (green card holders), and individuals who meet the substantial presence test per 26 U.S.C. § 7701(b)(3).
  • Entities: Corporations, partnerships, limited liability companies (LLCs), trusts, and estates created or organized in the United States or under U.S. laws.

Example: A U.S. citizen with permanent residency in a foreign country and foreign bank accounts is still required to file FBAR if their aggregate account balances exceed $10,000 at any point during the year.

Foreign Financial Accounts That Must Be Reported

The term foreign financial account includes:

  • Checking, savings, and time deposit accounts.
  • Brokerage accounts or securities accounts held in foreign financial institutions.
  • Mutual funds or other pooled funds maintained by foreign institutions, specifically those with regular net asset value determinations and redemptions.
  • Insurance or annuity policies with a cash value.
  • Commodity futures or options accounts held abroad (31 C.F.R. § 1010.350(c)(3); IRS FBAR Reference Guide).

What Does Not Qualify as a Foreign Financial Account?

  • Correspondent or nostro accounts maintained by banks.
  • Accounts held in U.S. military banking facilities (such as those on overseas installations).
  • Direct holdings in foreign stocks or securities purchased through a U.S. financial institution.
  • Foreign real estate, currency, or precious metals held directly (not in financial accounts).
  • Foreign retirement accounts, such as Canadian Registered Retirement Savings Plans, are generally reportable, except under specific circumstances.

Why Is Filing the FBAR Required?

The FBAR aims to prevent the use of foreign financial accounts for illicit purposes, including tax evasion and money laundering. Unlike Form 8938 under the Foreign Account Tax Compliance Act (FATCA), which focuses on income tax reporting, the FBAR is exclusively a tool for financial transparency under the BSA (31 U.S.C. § 5311).

The primary reasons for filing an FBAR include:

  1. Tax Compliance: Ensures taxpayers disclose income derived from foreign accounts.
  2. Combating Money Laundering and Criminal Activity: Provides the U.S. Treasury Department with resources to uncover illicit financial activities, including terrorism financing and drug trafficking.
  3. Global Reporting Standards: The FBAR aligns with international efforts to strengthen financial accountability and transparency, such as FATCA compliance (31 U.S.C. § 5322).

When Must the FBAR Be Filed?

Annual Filing Due Date

The FBAR must be filed by April 15 of the calendar year following the reporting year (31 C.F.R. § 1010.306(c)). However, taxpayers automatically qualify for an extension until October 15 if they fail to meet the April deadline.

Example: The FBAR for the tax year 2024 is due on April 15, 2025, with an automatic extension to October 15, 2025.

Special Circumstances

Certain individuals with signatory authority but no financial interest in the account, such as employees of certain regulated entities, may qualify for extended deadlines or exemptions based on FinCEN guidance.

How to File an FBAR

FBAR filings must be submitted online via the Financial Crimes Enforcement Network’s (FinCEN’s) BSA E-Filing System. Paper forms will only be accepted with prior authorization from FinCEN, typically in cases involving approved exemptions.

What Information Needs to Be Reported?

When filing, you must provide:

  • Name(s) of the account holder(s).
  • Account number(s).
  • Name and address of the foreign financial institution where the account is held.
  • Type of account (e.g., checking, brokerage, savings).
  • Maximum account value during the reporting year (converted to U.S. dollars).

Maintaining Records

The records associated with foreign accounts must be kept for five years from the FBAR’s due date. Documentation must include account numbers, names on the accounts, foreign financial institution details, type of account, and the maximum yearly value (31 C.F.R. § 1010.420).

Penalties for Non-Filing or Errors in Filing

Failure to comply with FBAR filing requirements can result in severe penalties under 31 U.S.C. § 5321.

  1. Non-Willful Violation: A non-willful failure to file or an incomplete report can result in civil penalties of up to $10,000 per violation unless the failure is due to reasonable cause.
  2. Willful Violation: If a willful failure to file or report is discovered, the penalty may be the greater of $100,000 or 50% of the account balance per violation, per year.
  3. Criminal Penalties: Willful violations can lead to criminal sanctions, including fines of up to $500,000 and/or imprisonment for up to 5–10 years (18 U.S.C. § 5322(a)).

Conclusion

The FBAR filing requirement ensures transparency for foreign financial accounts controlled by U.S. persons and deters illegal financial pursuits. U.S. citizens and entities must take this obligation seriously to avoid stiff penalties. Individuals with foreign accounts exceeding $10,000 in aggregate should consult with professionals to ensure accurate filings and compliance with U.S. law.

Citations

  • Bank Secrecy Act, 31 U.S.C. § 5314(a) (2021).
  • 31 C.F.R. § 1010.350(a)-(c).
  • 31 U.S.C. § 5321.
  • IRS, Instructions for FinCEN Form 114 (Rev. Oct. 2018).
  • IRS, Publication 5569, Report of Foreign Bank & Financial Accounts Reference Guide (Rev. March 2022).

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