Workbook on the Report of Foreign Bank and Financial Accounts (FBAR)
NOTE: On February 24, 2011 the Treasury Department published in the Federal Register amended regulations relating to the Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). This Web page has not yet been updated to correspond with the new regulations. The Web page will be updated as revised information becomes available.
Introduction
The Bank Secrecy Act (BSA) gave the Department of Treasury authority to establish recordkeeping and filing requirements for United States persons with financial interests in or signature authority, or other authority over financial accounts maintained with financial institutions in foreign countries. This provision of the law requires that a Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) be filed if the aggregate balances of such foreign accounts exceed $10,000 at any time during the year. (See Exhibit 1, Form TD F 90-22.1)
On April 10, 2003, the Financial Crimes and Enforcement Network (FinCEN) delegated enforcement authority to the Internal Revenue Service (IRS). The IRS is now responsible for:
- Investigating possible civil violations.
- Assessing and collecting civil penalties; and
- Issuing administrative rulings.
Objectives
- Learn the purpose of the FBAR regulation.
- Determine who must file the FBAR.
- Determine the FBAR filing requirements.
- Understand the civil and criminal penalties that may be applicable for noncompliance with the FBAR filing requirements.
- Determine who is exempt from the FBAR filing requirements.
Purpose of the FBAR
The FBAR rules were established because of the utility of the information required in criminal, tax, and other regulatory matters and in the conduct of intelligence or counterintelligence activities including analysis to protect against international terrorism.
The reports filed as a result of this regulation provide leads to investigators that facilitate the identification and tracking of illicit funds or unreported income, as well as providing additional prosecutorial tools to combat money laundering and other crimes.
Who Must File the FBAR?
A United States person must file an FBAR report if that person has financial interest in, signature authority or other authority over any financial account (s) in a foreign country and the aggregate value of these account(s) exceeds $10,000 at any time during the calendar year.
The account value is the largest amount of currency and/or monetary instruments that appear on any quarterly or more frequently issued account statement for the applicable year. If a periodic account statement is not issued, the maximum account value is the largest amount of currency and/or monetary instruments in the account at any time during the year. If the aggregate value of accounts exceeds $10,000 at any time during the calendar year an FBAR must be filed.
Definition of a United States Person
A “United States person” is:
- A citizen or resident of the United States.
- A domestic partnership.
- A domestic corporation.
- A domestic trust or estate.
Definition of Foreign Financial Accounts
Foreign financial accounts include the following accounts:
- Bank accounts such as savings accounts, checking accounts, and time deposits.
- Securities accounts such as mutual funds, brokerage accounts, and securities derivatives or other financial instruments accounts.
- Accounts where the assets are held in a commingled fund that is a mutual fund. See Notice 2010-23
- Any other account(s) maintained in a foreign financial institution or with a person doing business as a financial institution.
And are located outside the following:
- United States
- Northern Mariana Islands
- District of Columbia
- American Samoa
- Guam
- Puerto Rico
- U.S. Virgin Islands
- Trust Territories of the Pacific Islands
Definition of Financial Interest
Financial interest includes accounts for which the U.S. person is the owner of record or has legal title, whether the account is maintained on his or her own benefit or for the benefit of others including non-United States persons.
Financial interest also includes accounts where the owner of record or holder of legal title is a person acting as an agent, nominee, or in some other capacity on behalf of a U.S. person.
Example: John, a U.S. citizen who resides in Mexico, granted his brother Paul, a U.S. citizen, a Power of Attorney to access his Mexican bank accounts. Paul is the owner of record.
John has a financial interest in the account. Paul is acting only as an attorney on behalf of John. Paul also has a financial interest in the account, since he is the owner of record. Both John and Paul must file an FBAR.
Example: Given the information in the above example, if Paul is a Mexican citizen, must he file the FBAR?
No, Paul is not considered to be a U.S. person.
Financial interest in an account also includes a corporation in which a U.S. person directly or indirectly owns more than 50 percent of the total value of the shares of stock.
Example: A Florida corporation that owns 100% of a foreign company that has foreign financial accounts has to file an FBAR because the corporation is a U.S. person and the owner of record or holder of legal title is a corporation that directly owns more than 50% of the total value of the shares of stock.
Example: A U.S. person who owns 75% of the Florida corporation in the previous example has to file an FBAR because he indirectly owns more than 50% of the total value of shares of stock of the foreign corporation.
Financial interest also includes an account where the owner of record or holder of legal title is:
- A partnership in which the U.S. person owns interest in more than 50% of the profits; or
- A trust in which the U.S. person either has a present beneficial interest in more than 50% of the assets or receives more than 50% of the current income.
Definition of Signature Authority
A U.S. person has account signature authority if that person can control the disposition of money or other property in the account by delivery of a document containing his signature to the bank or other person with whom the account is maintained.
Definition of Other Account Authority
A person with other authority over an account is one who can exercise power that is comparable to signature authority over an account by direct communication, either orally or by some other means to the bank or other person with whom the account is maintained,.
Example: A person who has the power to direct how an account is invested but cannot make disbursements or deposits to the account does not have to file an FBAR because the person has no power of disposition.
Reporting for Joint Accounts
If two persons jointly maintain an account, or if several persons each own a partial interest in an account, then each U.S. person has a financial interest in that account and each person must file an FBAR.
A spouse having a joint financial interest in an account with the filing spouse should be included as a joint account owner in Part III of the FBAR. The filer should write (spouse) on line 26 after the last name of the joint spousal owner. If the filer’s spouse is required to report only jointly owned financial accounts that are reported on the filer’s FBAR, the filer’s spouse need not file a separate FBAR but must also sign the filer spouse’s FBAR to fulfill his or her reporting obligation. If the filer’s spouse is required to file an FBAR for any account that is not jointly owned with the filer, the filer’s spouse must file a separate FBAR for all of the accounts, including those owned jointly with the other spouse.
Recordkeeping
FBAR records should be kept for five years from the due date of the report which is June 30 of the following calendar year. The records should contain the following:
- Name maintained on each account.
- Number or other designation of the account.
- Name and address of the foreign bank or other person with whom the account is maintained.
- Type of account.
- Maximum value of each account during the reporting period.
Filing Exceptions
The following types of accounts and persons are excepted from the FBAR filing requirement.
- Accounts held in a military banking facility operated by a United States financial institution designated by the United States Government to serve U.S. Government installations located abroad.
- Officers or employees of a bank under the supervision of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the Federal Deposit Insurance Corporation are exempt from filing the FBAR, if that officer or employee has NO personal financial interest in the account.
- Officers or employees of a domestic corporation whose equity securities are listed on national securities exchanges, or which has assets exceeding $10 million and 500 or more shareholders of record, need not file an FBAR concerning the other signature authority over a foreign financial account of the corporation, if:
- the officer or employee has NO personal financial interest in the account, and
- has been advised in writing by the chief financial officer of the corporation that the corporation has filed a current report which includes that account.
Penalties
The following chart highlights the civil and criminal penalties that may be asserted for not complying with the FBAR reporting and recordkeeping requirements.
|
Violation |
Civil Penalties |
Criminal Penalties |
Comments |
|---|---|---|---|
| Negligent Violation | Up to $500 | N/A | 31 U.S.C. § 5321(a)(6)(A) 31 C.F.R. 103.57(h) |
| Non-Willful Violation | Up to $10,000 for each negligent violation | N/A | 31 U.S.C. § 5321(a)(5)(B) |
| Pattern of Negligent Activity | In addition to penalty under § 5321(a)(6)(A) with respect to any such violation, not more than $50,000 |
N/A | 31 U.S.C. 5321(a)(6)(B) |
| Willful - Failure to File FBAR or retain records of account | Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. | Up to $250,000 or 5 years or both | 31 U.S.C. § 5321(a)(5)(C) 31 U.S.C. § 5322(a) and 31 C.F.R. § 103.59(b) for criminal. The penalty applies to all U.S. persons. |
| Willful - Failure to File FBAR or retain records of account while violating certain other laws | Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. | Up to $500,000 or 10 years or both | 31 U.S.C. § 5322(b) and 31 C.F.R. § 103.59(c) for criminal The penalty applies to all U.S. persons. |
| Knowingly and Willfully Filing False FBAR | Up to the greater of $100,000, or 50 percent of the amount in the account at the time of the violation. | $10,000 or 5 years or both | 18 U.S.C. § 1001, 31 C.F.R. § 103.59(d) for criminal. The penalty applies to all U.S. persons. |
| Civil and Criminal Penalties may be imposed together. 31 U.S.C. § 5321(d). | |||
Putting It All Together
In this lesson you learned:
- What is the purpose of the FBAR regulation.
- Who must file the FBAR.
- What are the FBAR filing requirements.
- What civil and criminal penalties may be assessed for noncompliance with FBAR filing and recordkeeping requirements.
- Who is exempt from the FBAR filing requirement.
Exercises
1) True or False
All foreign accounts of U. S. persons must be reported to the Department of Treasury.
2) Which of the following is a U.S. person? (Circle all that apply)
a. a citizen
b. a domestic corporation
c. a domestic partnership
d. a domestic trust or estate
e. all of the above
3) True or False
A savings account may be a type of foreign financial account.
4) True or False
An FBAR is not required if the foreign account generates neither interest nor dividend income.
5) True or False
If a person has a foreign account in the year 2009 that requires reporting, the FBAR is due April 15, 2010.
6) How long should account holders keep a copy of the filed FBAR?
a. 3 years
b. 5 years
c. 7 years
d. 10 years
7) Does a U.S. person need to file an FBAR for his Eurodollar account in the Cayman Islands?
8) A N.Y. corporation owns a foreign company that has foreign accounts. The corporation will file an FBAR for the foreign company’s accounts. Does a shareholder who owns 65% of the company’s stock need to file an FBAR?
9) True or False
Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. Government installations abroad, are not reportable on a FBAR.
(See Exhibit 2 for answers to exercises.)
Exhibit 1
Form TD F 90-22, Report of Foreign Bank and Financial Accounts (PDF)
Exhibit 2, Answers to Exercises
1) False
Only foreign accounts with an aggregate value of more than $10,000 at any time during the calendar year must be reported.
2) e.
All of the choices are a U.S. person. A United States person is:
-
A citizen or resident of the United States
-
A domestic partnership
-
A domestic corporation
-
A domestic estate or trust
3) True
A “financial account” includes bank, securities, securities derivatives, or other financial instruments accounts. The term also means any savings, demand checking, deposit, or any other account maintained with a financial institution.
4) False
An FBAR must be filed whether or not the foreign account generates any income.
5) False
The FBAR is due by June 30, 2010. The FBAR is due by June 30 of the subsequent year after the account holder meets the more than $10,000 threshold.
6) b.
Copies of the FBAR must be kept for a period of five years.
7) Yes
The Cayman Islands account is a foreign account.
8) Yes
An FBAR must be filed by any owner that directly or indirectly owns more than 50 percent of the total value of the shares of stock.
9) True
Accounts in U.S. military banking facilities, operated by a United States financial institution to serve U.S. Government installations abroad, are not reportable.
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