What is a FinCEN 114 and When Do I Need to File One?
Last week we discussed Form 8938 and the various thresholds for filing this form. Today, we will discuss the very similar Form FinCEN 114, also known as the FBAR. Many Americans overseas, not to mention non-Americans moving to the U.S., will need to file this form, and in fact, this is one of the most common pieces of an expatriate tax return. Fortunately, it is one we are very well-acquainted with, and therefore, can give good guidance on.
If one is an American living overseas, or a non-American who moves to the U.S., it is highly likely that they would meet the filing threshold for filing an FBAR. Why is that? Because the threshold for filing an FBAR is far lower than the threshold for filing its cousin form, the 8938. Specifically, if you have a financial interest or are a signatory on at least one financial account located outside the United States and if the aggregate value of all of those financial accounts exceeds $10,000 at any time during the year, you have an FBAR filing obligation. Therefore, it is easy to see how one can end up having to file this form.
There are a few things to take note of when filing an FBAR. Firstly, unlike Form 8938, the FBAR is not filed together with your tax return, but rather, separately, through the Financial Crimes Enforcement Network’s BSA E-Filing System, and further, it must be e-filed. Additionally, if you are unable to file the form by April 15, there is no need to file an extension, as you are allowed an automatic extension until October 15. Also, it does not matter whether one is filing Single or Married Filing Jointly – the threshold for the FBAR is the same for each person. Finally, one scenario that trips FBAR filers up is the fact that an account at a financial institution outside the U.S. would need to be reported on the FBAR, even if it is held at a foreign branch of an American financial institution.
Also, please note that filing an FBAR does not absolve one of their duty to file a Form 8938. Indeed, many expats we come across have a filing requirement for both of those forms. However, just because you have an FBAR filing requirement does not automatically mean you would have a Form 8938 filing requirement, mostly because the threshold for filing a Form 8938 is higher than that of the FBAR. Therefore, one should carefully add up the total balances of all of their foreign financial accounts, and see if they have a filing requirement for both the FBAR and 8938. It can be very confusing, because, as discussed previously, some types of foreign financial accounts or assets are reported on one form but not the other.
And what are the penalties for not filing a timely FBAR? For each violation that is not non-willful (meaning that the taxpayer can prove that they did not intentionally avoid filing an FBAR), the current maximum penalty is $12,921. Given that many expats have more than one foreign financial account (for instance, they may have a few bank accounts, a pension account, and so forth), you can see how the penalties might add up to be something rather unpleasant. Additionally, the penalties for willful violations are far higher. Therefore, if you hold foreign financial accounts and have met the threshold to file an FBAR, it is very important to file this form correctly and on a timely basis.
It should also be noted that there are exceptions to filing an FBAR, and that it is difficult to cover every single scenario in a short article. Therefore, if you have a financial interest in a financial account located outside the U.S., please get in touch today to confirm your FBAR filing requirements. Indeed, you don’t want to be surprised sometime down the line with penalties related to these foreign financial accounts.