If you maintain a foreign financial account, which could be a bank account, a mutual fund, a brokerage account, or any other sort of account, that contains a collective value of $10,000, you may be requested by the Bank Secrecy Act to report your account annually to the Department of Treasury through electronic filing. The Report of Foreign Bank and Financial Accounts, FBAR, is a form that must be recorded directly with the office of Financial Crimes Enforcement Network, or FinCEN.
Those who complete this form must detail the maximum value of financial accounts upheld by a financial institution positioned in a foreign country. The reporting responsibility is also met by responding to queries on a tax return about your foreign accounts. If the form is not completed, a penalty of up to $10,000 or above, as well as criminal consequences, could be headed your way.
However, there are exceptions to this rule. According to the IRS, you may be exempt from this form if you:
- Have specific foreign accounts that are cooperatively owned by partners
- Have Correspondent or Nostro accounts
- Have foreign accounts preserved by an international financial institution or government entity
- Are a recipient or owner of U.S. IRAs
- Are a participant or recipient of tax-qualified retirement plans
- Have signature authority over the account but zero financial interest
- Are trust beneficiaries; however, only if a person from the United States reports the account on the form on behalf
- Have foreign accounts managed at a military bank in the United States
It’s important to note that the balance has to be cumulative, indicating that if you have a pooled account balance of $10,000 at one time, but split the amount between two accounts, both accounts must be reported. To learn more, reference the IRS website here.
Watch our video!
For more information on this topic, please reach out to Wiss’ Tax Department at 973.994.9400 or at firstname.lastname@example.org.