IRS Reference Guide Aids FBAR Filers

The IRS recently issued a Reference Guide on the Report of Foreign Bank and Financial Accounts (FBAR). This IRS reference guide is available on the IRS website (, specifically at the webpage entitled “Report of Foreign Bank and Financial Accounts (FBAR),” under the Educational Resources subheading. Taxpayers who are required to file an FBAR for calendar year 2013 must file the form with Treasury by June 30, 2014. This Practitioners’ Corner takes a closer look at the FBAR and its filing requirements described in the reference guide, supplemented by information from the online Bank Secrecy Act (BSA) e-filing system.

The BSA authorized Treasury to collect information from U.S. persons who have financial interests in, or signature authority over, financial accounts maintained with financial institutions outside the United States. The BSA is administered by the Financial Crimes and Enforcement Network (FinCEN), a Treasury bureau separate from the IRS. FBARs must be filed with FinCEN, not the IRS. However, FinCEN delegated FBAR enforcement authority to the IRS for investigating civil violations; assessing and collecting civil penalties; and issuing administrative rulings.

FBAR filers used to file Form TD F 90-22.1 and could file a paper form. Now, filers must file FinCEN Form 114 and must file it electronically, using the BSA E-Filing System website. The FBAR is not filed with the IRS; an extension to file an income tax return has no effect on the June 30 deadline for filing an FBAR. An attorney, CPA or enrolled agent may file an FBAR on behalf of a client, if the client has provided authority to the filer on BSA Form 114a.

The IRS explained it is better to file an incomplete form by June 30 even if some information is lacking. The filer can file an amended FBAR using the electronic system and the error correction procedures. FinCEN instructs filers to fill out the new FBAR form completely. There is no extension of time to file an FBAR. However, persons who belatedly discover the need to file an FBAR for a previous year can use the same system and designate the year being reported.

The reference guide states that while U.S. persons may maintain overseas financial accounts for a variety of legitimate reasons, FBARs are necessary because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.


A 2010 law, the Foreign Account Tax Compliance Act (FATCA), now requires foreign financial institutions to report on their accounts and assets held by U.S. taxpayers. Although there is some overlap, the reporting thresholds are higher under FATCA, and other requirements may differ from the FBAR.

The IRS and Treasury also use the FBAR to identify persons who may be using foreign financial accounts to circumvent U.S. laws. Information in an FBAR can be used to identify or trace funds used for illicit purposes, and to identify unreported income held or earned abroad.

A “U.S. person” with a “financial interest” in or “signature authority” over a “foreign financial account” or accounts must file an FBAR, if the “aggregate maximum value” of the accounts exceeded $10,000 at any time during the calendar year. Thus, U.S. persons whose foreign accounts exceeded $10,000 at any time during 2013, must file an FBAR by June 30, 2014.

Value. The value of an account is a reasonable approximation of the greatest value of currency or assets in the account during the calendar year. Periodic account statements may be relied on. The maximum value of a foreign financial account is determined in the currency of the account. This value must then be converted into U.S. dollars using the exchange rate on the last day of the year.


When converting to U.S. dollars, use the Treasury Reporting Rates of Exchange for the last day of the year.

U.S. person. A U.S. person includes:

  • A U.S. citizen or resident;
  • An entity (such as a corporation, partnership, limited liability company, and a disregarded entity) created or organized in the U.S. or under U.S. law; and
  • A trust or estate formed under the laws of the U.S.

A U.S. resident includes an alien residing in the U.S., based on the residency tests in Code Sec. 7701(b). The “United States” includes the 50 states, the District of Columbia, U.S. territories and possessions, and American Indian lands.


Kay is a permanent legal resident of the U.S. and a citizen of Britain. Under a tax treaty, Kay elects to be taxed in Britain. Kay must file an FBAR, because tax treaties do not affect FBAR filing obligations.

Financial accounts include:

  • Bank accounts—saving, checking, and time deposits, for example;
  • Brokerage accounts, securities derivatives and other financial instrument accounts;
  • Commodity futures or options accounts;
  • Insurance policies with a cash value;
  • Mutual funds or similar pooled funds (available to the general public); and
  • Other accounts maintained in a foreign financial institution or similar arrangement.

If two persons jointly maintain a foreign financial account, each must file an FBAR. However, spouses can qualify for an exception, and file only one FBAR, if the nonfiling spouse only owns financial accounts jointly with the filing spouse; and the filers complete, sign, and keep a record of Form 114a, Record of Authorization to Electronically File FBAR. The latter step is necessary because the electronic system only accepts one signature for an FBAR.

A foreign account must be located outside the U.S., which like the definition of a U.S. resident, includes the 50 states, Washington D.C., U.S. territories, possessions, and Indian lands.


Foreign hedge funds and private equity funds are not reportable on the FBAR. FinCEN regs issued in 2011 do not require reporting these funds at this time.


An account at a branch of a U.S. bank that is located in Germany is a foreign financial account. An account at a branch of a French bank that is located in Texas is not a foreign account. A U.S. citizen who purchases securities of a French company through a U.S. securities broker does not have to report, because the purchase was made through a U.S. financial institution.

Financial interest. A U.S. person (an individual or entity) has a financial interest in an account if the owner of record or holder of legal title is:

  • A U.S. person, whether or not the account is maintained for the U.S. person’s benefit;
  • An agent, nominee or attorney or person acting on behalf of a U.S. person;
  • A corporation of which a U.S. person owns more than 50 percent (by vote or value);
  • A partnership in which a U.S. person owns more than 50 percent of the profits or capital interests;
  • A trust of which a U.S. person is the grantor and owns an interest under the grantor trust rules;
  • A trust of which a U.S. person has a greater than 50 percent present beneficial interest in the assets or income; or
  • Any other entity of which a U.S. person owns directly or indirectly more than 50 percent of the vote, value, or profits interests.


A remainder interest in a trust is not a present beneficial interest.

Signature authority. Signature authority is authority held by one or more individuals to control, by direct communication to the account holder, the disposition of assets held in a foreign financial account. A person holding a power of attorney over a foreign account must file an FBAR, even if s/he never exercises the power of attorney.

A U.S. person employed and residing outside the U.S. and who has signature authority over a foreign financial account owned or maintained by the individual’s employer is only required to complete part of the FBAR—Parts I and IV (lines 34–43), and the signature section.

The following persons are excepted from filing an FBAR:

  • Consolidated FBAR—A U.S. entity named in a consolidated FBAR filed by a greater than 50 percent owner;
  • IRA owners and beneficiaries;
  • Retirement plan participants and beneficiaries, under Code Secs. 401(a), 403(a) or 403(b); and
  • Trust beneficiaries with more than 50 percent interests in the trust if the trust, trust agent, or trustee is a U.S. person and files an FBAR.

There also are exceptions for certain individuals with signature authority over but no financial interest in an account, such as an officer or employee of: a bank examined by an agency of the federal government; a financial institution or investment company registered with the SEC or CFTC or a U.S. subsidiary of a U.S. parent that files a consolidated FBAR.

Interest holders should keep records of reported accounts for five years after the due date of the FBAR. The records should include the names on each account; the account designation; the name and address of the foreign bank or person with the account; the type of account; and maximum value during the reporting period.

Failure to file an FBAR can result in civil and/or criminal penalties. Potential penalties include the following:

  • Negligent violation—a civil penalty up to $500;
  • Non-willful violation—a civil penalty up to $10,000 per violation;
  • Pattern of negligent activity—not more than $50,000 (plus penalties described above);
  • Willful violation (failure to file or failure to retain records)—civil penalty up to the greater of $100,000 or half of the account at the time of the violation; criminal penalties up to $250,000 or five year in prison or both;
  • Willful violation accompanied by violating certain other laws—potential criminal penalties increase to up to $500,000 or 10 years in prison or both; and
  • Knowingly and willfully filing a false FBAR—civil penalties up to the greater of $100,000 or half of the account at the time of the violation; criminal penalties of $10,000 or five years in prison or both.

“Taxpayers who are required to file an FBAR for calendar year 2013 must file the form with Treasury by June 30, 2014.”