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FBAR Filing: When is it Required?

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One common refrain from taxpayers who hold foreign accounts and learn of the need to file an FBAR (FinCEN Report 114) years after the account was opened is that they never knew the FBAR existed.  Their initial knowledge can come from many sources: a newspaper report, an online article, an offhand question from an accountant, or direct communication from the bank maintaining the account.  Becoming knowledgeable of FBAR reporting requirements related to foreign accounts prior to (or contemporaneously with) opening the account can thus allow taxpayers to avoid headaches going forward.  Even for taxpayers who learn of FBAR requirements years after a foreign account is opened, gaining such knowledge is of assistance both in remedying past omissions and complying with requirements on a prospective basis.

As stated above, FBAR requirements are currently met by filing FinCEN Report 114; this form replaced prior Form TD F 90-22.1 in December 2013 (delinquent FBARs for years prior to 2013 are also now completed using FinCEN Report 114).  FBARs must be filed electronically; while the report may be filed by an authorized representative, the FBAR is filed separately from an individual’s income tax return (the form is not processed by the Internal Revenue Service, but rather by the Financial Crimes Enforcement Network).  FBARs must be filed by June 30 of the year immediately following the calendar year being reported (i.e. forms required for foreign accounts held in 2014 must be submitted by June 30, 2015).  Importantly (and unlike with tax returns), no extensions for filing the FBAR can be obtained.

The instructions to the FBAR state that the form is used to “report a financial interest in or signature authority over a foreign financial account.”  Filing requirements exist for United States persons who maintain an interest in or signature authority over foreign financial accounts with an aggregate value over $10,000 at any time during the year.  Ambiguity can exist over which parties are classified as “United States persons,” what constitutes an “interest” or “signature authority,” and what is classified as a “foreign financial account.”
“United States persons” are defined as individuals, corporations, limited liability companies, partnerships, trusts, and estates.  Filing requirements exists for United States citizens and residents.  Importantly, United States citizens who reside outside the United States are still required to file FBARs for all years in which they maintain citizenship.  Filing requirements also exist for minor children whose names appear on foreign accounts.

An “interest” in a foreign financial account exists primarily where an individual is the owner of record for the account.  “Signature authority” is present where an individual is permitted to control the disposition of assets in the account.  As a general rule, if a person is named on an account, a FBAR filing requirement will exist.

Additionally, the government has recently taken the position that agents named in a power of attorney made effective immediately (a “durable” power of attorney) have a FBAR filing requirement if the principal is the holder of foreign financial accounts with an aggregated value of $10,000 or greater.  In many instances, the agent under a power of attorney will be unaware that the principal holds such accounts; inquiry by the agent (and disclosure by the principal) is thus essential.

A “foreign financial account” is defined by the FBAR instructions simply as a “financial account located outside the United States.”  Financial accounts include securities, brokerage, savings, demand, checking, deposit, and time deposit accounts maintained with a financial institution.  Insurance and annuity policies with cash value are also considered accounts for these purposes, as are shares in mutual funds.

For certain individuals, reporting requirements are clear; however, for others, ambiguity can exist based on the guidance provided by the government.  Speaking with qualified advisors where such questions arise is of great benefit in assessing the need to file, both currently and retroactively.

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