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FBAR Financial Accounts Definition | International Tax Lawyer & Attorney

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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:

  1. Accounts in US military banking facilities serving US government installations abroad;
  2. Accounts over which most bank officers or employees have only signature authority (unless they have a personal financial interest); and
  3. 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!

Indian Bank Accounts : Key US Tax Obligations | International Tax Lawyer

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Due to ongoing implementation of FATCA as well as the tax reform in India, more and more Indian Americans and US tax residents of Indian nationality are learning that they are required to disclose to the IRS their Indian bank accounts. Yet, there are still many more US taxpayers left who are either completely unaware of this requirement or they are confused with respect to what is required to be disclosed and how. This essay intends to clarify who is required to report their Indian bank accounts to the IRS and explain the most common US international tax requirements applicable to Indian bank accounts.

Indian Bank Accounts: Who Needs to Report Them to the US Government?

All US tax residents with Indian bank accounts need to disclose them to IRS. Warning: “US tax resident” is not equivalent to the immigration concept of “US Permanent Resident”. The confusion over these two concepts is a frequent cause of US tax noncompliance, because many Indian immigrants who come to the United States on a work visa assume that they are not US tax residents since they do not have the status of a US Permanent Resident. This assumption is completely false.

The definition of US tax residency includes US permanent residents, but it is much broader. In general, this term includes: US citizens, US Permanent Residents, any person who satisfied the Substantial Presence Test and any person who declared himself as a tax resident. There are exceptions to this rule, but you will need to consult with an international tax lawyer before making use of any of these exceptions.

Indian Bank Accounts: Indian Income Must Be Disclosed on US Tax Returns

All US tax residents must comply with the numerous US tax reporting requirements, including the worldwide income reporting requirement. All Indian-source income generated by the Indian bank accounts of US tax residents must be disclosed on their US tax returns.

The worldwide income reporting requirement applies to any kind of income: bank interest income, dividends, capital gains, et cetera. This income should be reported on US tax returns even if it was already disclosed on Indian tax returns or subject to Indian tax withholding. This income should be disclosed in the United States even if it never left India.

Indian Bank Accounts: FBAR

The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (popularly known as “FBAR”) is one of the most important and dangerous reporting requirements that applies to Indian bank accounts. Generally, a US person is required to file FBAR if he has a financial interest in or signatory authority or an authority over foreign bank and financial accounts which, in the aggregate, exceed $10,000 at any point during a calendar year.

FBAR has an extremely severe penalty system, and US taxpayers should strive to do everything in their power to make sure that they comply with this requirement.

Indian Bank Accounts: FATCA Form 8938

US tax residents are also required to disclose their Indian bank accounts on Form 8938. The Foreign Account Tax Compliance Act (“FATCA”) led to the creation of Form 8938; US taxpayers should have filed their first Forms 8938 with their 2011 US tax returns.

Form 8938 requires US tax residents to report all of their Specified Foreign Financial Assets (“SFFA”) as long as the Form’s filing threshold is met. SFFA includes a very diverse set of financial instruments, including foreign bank and financials accounts, bonds, swaps, ownership interest in a foreign business, beneficiary interest in a foreign trust and many other types of financial assets. In other words, with the exception of signatory authority accounts, Form 8938 not only duplicates FBAR, but covers a much broader range of financial instruments that would not be required to be reported on FBAR.

It should be pointed out that, even when FBAR and Form 8938 cover the same assets, both forms must be filed despite the duplication of the disclosure.

While Form 8938 has a much higher filing threshold than FBAR, it may still be easily exceeded, especially by taxpayers who reside in the United States. For example, if a taxpayer resides in the United States and his tax return filing status is “single”, then he would only need to have $50,000 or higher at the end of the year or $75,000 or higher at any point during the year in order to trigger the Form 8938 filing requirement. A lot of US taxpayers with Indian bank accounts easily exceed this threshold, especially if they are helping their parents or buying properties in India.

Finally, it should be remembered that Form 8938 has its own penalty structure for failure to file the form. Furthermore, Form 8938 forms an integral part of a federal tax return; this means that a failure to file the form may extend the IRS Statute of Limitations for an IRS audit indefinitely for the entire return.

Contact Sherayzen Law Office for Professional Help With Reporting of Your Indian Bank Accounts in the United States

In this essay, I just listed the most common US tax reporting requirements that may apply to US owners of Indian bank accounts. There is a plethora of other requirements that may apply to these taxpayers.

Contact Sherayzen Law Office for professional help with your US tax compliance. We have worked extensively with our Indian clients with respect to reporting of their Indian bank accounts, including offshore voluntary disclosure for late filings.

The stakes in international tax compliance are high, and you need to be able to rely on the knowledge, experience and professionalism of Sherayzen Law Office in order to make sure that you protect yourself from draconian IRS tax penalties. We have successfully helped hundreds of US taxpayers to deal with their US international tax compliance, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!