In the realm of US international tax compliance, few topics are as crucial as the reporting of foreign financial accounts, particularly The Foreign Bank and Financial Accounts Report (FBAR). This article focuses on one specific aspect of FBAR compliance: what accounts need to be disclosed on FBAR. In particular, we will delve into the intricacies of the scope of the FBAR financial accounts definition.
Please, note that this article is an upgrade of an article that I published almost fifteen years ago.
FBAR Financial Accounts Definition: FBAR Background Information
FBAR is one of the most important US international tax compliance forms. All US persons must file an FBAR if they have a financial interest in or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at any time during the calendar year (31 USC. § 5314; 31 C.F.R. § 1010.350).
FBAR filing is separate from income tax filing and has its own distinct requirements and deadlines. Also, a taxpayer must comply with his FBAR reporting obligations even if he already reported the same foreign financial accounts elsewhere (such as Form 8621 or Form 8938). US filers must file their FBARs (officially FinCEN Forms 114a) electronically through FinCEN’s BSA E-Filing System.
Additionally, FBAR has its own unique and very severe penalty system for noncompliance, including criminal penalties. This is why it is so important to understand what type of accounts should be disclosed on FBAR.
FBAR Financial Accounts Definition: Determining Reportable Accounts
When assessing whether an account qualifies as an FBAR foreign financial account, one should consider:
1. The account’s location. The account must be outside the United States – there is special definition for FBAR purposes for what this means. I will not discuss the definition of “foreign accounts” in this article; instead I will only focus on what type of accounts need to be disclosed.
2. The account type. The main issue is whether this particular foreign asset falls within the definition of a “financial account” – this is the main topic of this article.
3. Your relationship to the account. In other words, do you have a financial interest in or signature authority over the foreign accounts in question.
4. The aggregate value of all foreign financial accounts. Generally, the accounts must exceed $10,000 in the aggregate at any point in the year. I will discuss in another article how this is calculated.
FBAR Financial Accounts Definition: Broad Scope
The definition of “financial account” for FBAR purposes is very broad. It is very important to understand that it is so broad that many taxpayers would not even normally consider certain arrangements as financial accounts.
In general, if there is a value maintained as part of a fiduciary relationship with a financial institution, it is likely to be a reportable account on FBAR. See 75 Fed. Reg. at 8846. The IRS, however,has stated “an account is not established simply by conducting transactions such as wiring money or purchasing a money order where no relationship has otherwise been established.” Id.
FBAR Financial Accounts Definition: Bank, Securities and Investment Accounts
For the FBAR purposes, financial accounts include all checking, savings, brokerage and securities accounts. 75 Fed. Reg. 8846 defines “securities account” as “an account maintained with a person in the business of buying, selling, holding, or trading stock or other securities.” Id. Securities derivatives and other similar financial instruments held with a financial institution all fall within the definition of a reportable account. However, paper bonds, notes and stock certificates that are not held through a financial institutions are not considered as “financial accounts.”
The FBAR financial accounts definition also applies to all demand, deposit and time deposit accounts (in other words, CD accounts and their equivalents).
FBAR Financial Accounts Definition: Debit Cards and Prepaid Credit Cards
31 C.F.R. § 1010.350(c) further expands the definition of “account” to foreign debit cards and prepaid credit cards. This definition of an account is an interesting one as even a slight overpayment of a credit card would make it a reportable account for FBAR purposes.
FBAR Financial Accounts Definition: Other Financial Accounts
31 C.F.R. § 1010.350(c)(3) introduces four additional categories of accounts that a filer must include on his FBARs:
- Accounts with persons accepting deposits as a financial agency;
- Insurance policies with cash value or annuity policies (for example, this definition includes Assurance Vie accounts in France, LIC policies in India and Prudential Life Insurance policies in Hong Kong);
- Accounts with commodity futures or options brokers; and
- Accounts with mutual funds or similar pooled investments (e.g. mutual funds owned through individual folios in India).
FBAR Financial Accounts Definition: Retirement Plans
Reporting retirement accounts on FBAR probably presents the biggest challenge to US taxpayers. Generally, all foreign retirement accounts would be need to be disclosed on FBAR unless they fall under an exception.
For example, certain US retirement plans (under IRC sections 401(a), 403(a), 403(b), 408, or 408A) are exempt from FBAR reporting. However, US filers need to disclose on their FBARs all of their Canadian RRSP accounts, Singaporean CPF accounts, Australian Superannuation accounts, Israeli retirement accounts and many other types of foreign retirement accounts that these filers may have.
As a separate note, the greatest difficulty concerning foreign retirement accounts is not even FBAR reporting, but potential other requirements as such Form 8938 and, most importantly, Form 3520 and even Form 3520-A. The latter forms (Forms 3520 and 3520-A) are triggered if the foreign accounts are considered to be “foreign trusts”. However, this decision to treat foreign accounts as trusts should be done with great care.
FBAR Financial Accounts Definition: Exceptions
Finally, certain categories of foreign financial accounts are exempt from FBAR reporting:
- Accounts in US military banking facilities serving US government installations abroad;
- Accounts over which most bank officers or employees have only signature authority (unless they have a personal financial interest); and
- Accounts over which officers or employees of publicly traded or large privately held US corporations have only signature authority, subject to specific conditions (31 C.F.R. § 1010.350(f)).
Contact Sherayzen Law Office for Professional FBAR Help
FBAR noncompliance is one of the most common and one of the most fearsome problems facing US individual taxpayers with respect to their US international tax compliance. Sherayzen Law Office can help you resolve past FBAR noncompliance and bring your US tax affairs into full compliance with US tax laws.
We are a leading US international tax compliance and FBAR compliance firm. This is our core specialty in which we have profound knowledge and extensive experience.
Contact us today to discuss your specific FBAR and international tax compliance needs with an experienced tax attorney!
