By Alex McGowin

CPA Tax Consulting Expert 

Living abroad as a U.S. expat can be an exciting and rewarding experience. However, amidst the joys of exploring new cultures and building a life in a foreign land, it is essential for U.S. citizens and residents to remain aware of their tax obligations, including the often-misunderstood FBAR requirement. FBAR, short for the Report of Foreign Bank and Financial Accounts, plays a crucial role in ensuring compliance with U.S. tax laws and maintaining transparency regarding overseas financial holdings.
 
In this article, we will delve into the intricacies of the FBAR requirement, focusing specifically on its implications for U.S. expats. We will explore who must file an FBAR, the significance of this reporting obligation, potential penalties for non-compliance, and practical considerations for expatriates striving to meet their tax obligations while living abroad.
 
Who has to file an FBAR? The FBAR, designated as FinCEN Form 114, is a requirement by the U.S. Department of the Treasury. It mandates U.S. taxpayers with a financial interest in, or signature authority over, one or more foreign financial accounts to file the FBAR if the aggregate value of those accounts exceeds $10,000 at any point during the calendar year.
 
This requirement applies to individuals, including U.S. citizens, residents, and certain non-residents, as well as business entities such as corporations, partnerships, and limited liability companies (LLCs) that are considered U.S. persons for tax purposes. It is important to note that even if an individual does not meet the threshold for filing a U.S. tax return, they may still be obligated to file an FBAR if they meet the criteria mentioned above.
 
When is it due? The FBAR has a filing deadline of April 15th, with an automatic extension until October 15th. So for all practical purposes, the FBAR is due on October 15th and it is filed separately from the tax return.

What are the potential penalties? The penalties for failure to file a timely FBAR vary depending on whether the delinquency was considered willful or non-willful. This distinction has been the topic of several court decisions but one key point is that willful is similar but not necessarily the same as intentional. The facts and circumstances of each case will need to be reviewed to make this determination.

 

• Non-Willful Violations: If the failure to file the FBAR is determined to be non-willful, the penalty can range up to $10,000 per violation.

• Willful Violations: If the failure to file the FBAR is determined to be willful, the penalty can be the greater of $100,000 or 50% of the highest balance in the unreported foreign accounts per violation. In some cases, criminal penalties may also be imposed.

 

In a recent court case, the taxpayer won the argument that the $10,000 penalty for a non-willful violation was per form as opposed to per account. This was a big win for the taxpayer as it had been highly uncertain as to how the IRS defined "per violation".

 

Complying with the FBAR requirement is crucial for U.S. expats with foreign financial accounts. It helps avoid penalties and maintains transparency with the U.S. government. Seeking professional guidance is essential to navigate international financial reporting and ensure adherence to current tax regulations. Stay informed, consult experts, and fulfill your FBAR obligations promptly to enjoy your international experience with peace of mind and contribute to the integrity of the U.S. tax system.

Disclaimer: This is not to be considered tax advice. My firm, McGowin Tax LLC specializing in U.S. international tax planning and consulting for individuals and small businesses. Visit us at McGowinTax.com or email Alex McGowin directly at alex.mcgowin@mcgowintax.com.