The United States Internal Revenue Service applies special tax reporting standards to assets held in foreign financial institutions. These tax reporting rules require some individuals with foreign assets to file a specific tax form.
Tax laws pertaining to foreign assets can be confusing, so here are a few points that Americans need to keep in mind.
Who has to file an FBAR?
According to the IRS, if you have foreign financial accounts, “the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).”
You need to file an FBAR to report your foreign earnings and assets if (1) you are a United States person who has a signature authority or financial interest in a foreign account, and (2) the total value of all your foreign-held accounts exceeds $10,000 at any point within a calendar year.
The definition of a “United States Person” above includes U.S. residents; U.S. citizens, U.S. business entities and other legal entities like limited liability companies, partnerships and corporations created within the United States under U.S. laws; and estates and trusts created under U.S. laws.
Exceptions to the FBAR requirements?
Some individuals and institutions will be exempt from the FBAR reporting requirements. These include:
- Some foreign accounts that spouses jointly own
- Correspondent/Nostro accounts
- United States persons who have been included in a consolidated FBAR
- Foreign financial accounts that governmental entities own
- Foreign financial accounts that international financial institutions own
- Those who own or benefit from United States Individual Retirement Accounts
- Those who are beneficiaries of or participating in tax-qualified retirement plans
- Some individuals who have signature authority over a foreign account but do not have an actual financial interest in it.
- Beneficiaries of trusts, when another U.S. person reports the accounts via an FBAR filed for the trust.
- Foreign accounts kept on a U.S. military banking facility.
Do you need to file an FBAR?
Whether or not you need to file an FBAR and how to file an FBAR may not be entirely clear at first blanch. Before making a determination on an issue like this, make sure you fully understand your legal rights and obligations under IRS international tax rules.