Well, it seems that time is not taking any holidays. It’s already time for writing another article. Need to knock one out now to save some time later. (Strange, this fascination with time!)
Speaking of time, FBAR time is quickly approaching. Some of you, dear readers, already know what an FBAR is and what all the “who-hah” surrounding it is all about. For those of you who haven’t heard of an FBAR (or have chosen to place a mental block against it), hold on. We’re about to get into some more tax-related stuff. This “stuff” is not about tax, though, it is all about reporting.
FBAR? WHAZZAT?
To put it simply, the FBAR is the U.S. Treasury Department’s form TD F 90-22.1, Report of Foreign Bank and Financial Accounts. This form is used for reporting “a financial interest in or signature authority over a foreign financial account.” The “time approaching” bit relates to the timing of the report and its due date.
An FBAR must be received by the Treasury Department on or before June 30 of the year following the year being reported. (Did I say “simply”?) For an example, an FBAR for the calendar year 2012 must be received by the Treasury Department on or before June 30, 2013. You’ll note that the wording does not say, “must be postmarked by” – the FBAR has to be physically received by the Treasury Department by the due date.
Additionally, there is no extension of time to file the FBAR. An FBAR is considered either timely filed or late, period. There are substantial penalties for late filing or failing to file an FBAR.
Also, an FBAR cannot be filed with a tax return. It goes to a special Treasury Department address in Detroit, Michigan and not to an Internal Revenue Service Center. As a matter of fact, the FBAR really doesn’t have anything to do with the IRS.
DO I HAVE TO FILE AN FBAR?
Like all good answers to questions posed about government issues, the answer to the “Do I have to file?” question is: “Maybe yes, and maybe no – it all depends.”
- One of the things it depends on is whether or not you are considered a “U.S. Person.” Someone who IS NOT an U.S. Person DOES NOT have to file an FBAR. On the other hand, someone who IS an U.S. Person may or may not have to file an FBAR.
The definition of “U.S. Person” covers a lot of U.S. taxpayers, but simply stated for an individual human being: An U.S. citizen or resident alien (green card holder) are considered to be U.S. Persons for the purposes of filing an FBAR.
- Another thing it depends on is whether the U.S. Person has a financial interest in or signature authority over a foreign financial account.
Definitions abound here for phrases like “financial interest,” “signature authority,” and “financial account.” While not all inclusive, a simple understanding is whether the U.S. Person owns the account (individually or jointly), has control of the money in the account, can cause financial transactions within the account via his/her signature or acknowledgement or, in short, can make things happen with the foreign financial account.
(The foreign financial account, by the way, can be a bank deposit account, a time account, a brokerage account, or any number of accounts that are offered by a foreign financial institution – another phrase that has its own particular definition.)
- The final thing is depends on is whether the aggregate value of all of those foreign financial accounts exceeds $10,000 at any time during the calendar year.
This one is pretty straight forward. If the total value of an U.S. Person’s foreign financial accounts DOES NOT exceed $10,000, then the U.S. Person DOES NOT have to file an FBAR. If at any time during the calendar year, the total value of all of an U.S. Person’s foreign financial accounts combined exceeds $10,000 – even if for just one day – then that U.S. Person must file an FBAR.
WOW! MY HEAD HURTS!
I know the feeling. I’ve suffered such headaches many times. Let’s summarize what we’ve just learned – it’s really not as bad as it sounds:
Who Must File an FBAR. A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
There, that should make the pain ease a little.
Completing the FBAR isn’t very painful either, despite the groans of many taxpayers who fear it. A copy of the form is available from the Internal Revenue Service web site (you can point and click on the form’s name above, if you wish). It’s mostly an administrative task to fill in the blanks with the information requested.
I would say that any difficulty would lay with the keeping track of one’s foreign financial accounts aggregate value throughout the calendar year. If that exceeds the magic $10,000, then each account has to be listed, identified and have its maximum value during the calendar year recorded.
That’s about all there is to it. June 30, 2013 is just a couple of months away – now’s a good time to go over everything and see if you need to file an FBAR. Did I mention that you can “e-file” your FBAR? You sure can at:
http://bsaefiling.fincen.treas.gov/Enroll_Individual.html.
If you’d rather file the paper version, just remember that it must reach the Treasury Department by June 30. The address for paper filing is: U.S. Department of the Treasury, P.O. Box 32621, Detroit, MI 48232-0621, USA.
Good luck and happy filing!
Good info Paul,
If my wife, who is U.S. citizen (balikbayan born in PI) owns real estate that is worth more than $10 grand, does this need to be reported? What about if I own stock in a PI corporation that is over $10 thousand? Thanks.
Hi Jamie – The FBAR is for reporting foreign financial accounts, only.
Your wife’s real estate does not need to be reported.
As to your stock – if you hold the stock yourself, it does not need to be reported. If your stock is held in a brokerage account, then the brokerage account (not the stock itself) must be reported if the value was over $10K during 2012.
Hope that helps “ease” the headache! 😀
Thanks Paul!
Paul, there probably are ways to subvert the $10,000 requirement to file FBAR. I don’t know what they are, but I think if one is creative enough, it’s probably possible. I knew of one dishonest used car dealer some years back who avoided having to report to the government cash sales of $10,000 and over. His clients were mostly drug dealers who came to him to buy luxury cars that were stolen, chopped up and reconstructed with fabricated VINs. Buyers would pay him $9,999.00 in cash in multiple transactions. Within a few years, he became a millionaire, but then the balloon popped when he made the mistake of dumping his girlfriend for a better looking one. Last I heard, the creative car dealer is still in jail. Moral of the story? Don’t dump your girlfriend if you’re committing a crime. LOL
Moral of the story is supposed to read, “File your FBAR!” 🙂
Hi John – About the only way to subvert the $10K requirement is to keep the money in your mattress. (I.e., keep it out of a foreign financial account.) That $10K threshold is an aggregate – could be one foreign financial account with $10,001 in it; could be 100 foreign financial accounts with $100.01 in each. So, splitting it up amongst various accounts and moving it around are thwarted.
Moral: File your FBAR! 😀
Paul, I appreciate all this financial information you post here. Things aren’t terribly complicated, but it’s more so than you’d think.
Take care,
Pete
Hi Pete – Things can look pretty nasty until you dig into them a little and find out that they’re not as nasty as first thought. But, yes, they still are not simple. 😉
Reading all these *must*’s, I feel really sorry for the “US person”.
How does one cease being a “US person”?
Hi Joop – How does one cease being a US Person? Well, for individuals, that would mean a citizen renouncing citizenship (and paying “exit tax”); or a green card holder surrendering the green card. Both abandon their ties with the US.
For other entities that are considered US Persons, the process is a little more difficult but it still adds up to abandoning ties with the US. (E.g., a US corporation folding up and terminating business as a US corporation.)
Once you are a US Person, it’s difficult to cease being one! 😉
Paul:
Is this yearly filing or if you disclose once is that enough? (ie. I file this year for all accounts in 2012, do I file next year again for the same accounts?)
Hi John – This is a yearly filing. You file the FBAR for every year that the aggregate value of you foreign financial accounts exceeds the $10K threshold.
If you file this year for all accounts in 2012, and the aggregate value of those accounts exceed $10K sometime during 2013, then you will have to file an FBAR for calendar year 2013 – which is due June 30, 2014.
On a more serious note, Paul, I do have a question. Seven siblings (all U.S. persons and residing in the U.S.) are left with an income-generating property situated within a compound in Manila when their parents passed away more than ten years ago. The parents left no will, but, by law of succession the property is bequeathed to the siblings. The siblings, however, are dragging their feet and have yet to execute an extra-judicial settlement for the equitable distribution of the estate among themselves and pay the inheritance taxes and penalties that have been accumulating over the years. A Power of Attorney was granted to a Filipino relative to act as the caretaker and rent collector for said property and deposit the money collected directly into a Philippine savings account. His name is in the bank account. In order to prevent him from withdrawing money on his own without authorization, the name of one of the siblings is in the account as the owner of the bank account. Meanwhile, the balance continues to grow. For the purpose of discussion, let’s say that the bank balance currently stands at $700,000. First question: If the sibling whose name is in the bank account should file the FBAR for 2012, should he indicate that he has $700,000, or $100,000 (1/7th of the inheritance) in the bank account? Second question: should he file at all, given that no formal extrajudicial settlement of estate has been executed to date?
Hi John – Here are some answers, with the assumption that the sibling in question is a US Person:
1) The sibling whose name is in the bank account as an owner should file the FBAR for 2012 indicating the maximum value of that account (e.g., $700,000). It is the value of the foreign financial account that is being reported, not the sibling’s share.
2) Since the sibling is the owner of a foreign financial account that has a maximum value exceeding $10,000, he is required to file the FBAR regardless of the settlement status of the estate. The sibling is looked upon as the owner of the foreign financial account.
This is getting interesting, Paul. The FBAR is filed with the Treasury Department, not with the IRS. Further, you stated that the FBAR has nothing to do with the IRS (which is good news). But, what does Treasury do with the information?
Hi John – The Treasury Department monitors the foreign financial accounts of US Persons with respect to any illegal activity that might be occurring. (War on drugs, etc.) While there is no direct connection between the FBAR and the IRS, the Treasury Department does inform the IRS of large overseas holdings with an eye toward any taxes due, avoided or evaded. It’s the Treasury Department’s call on what info it shares.