FBAR for American expats

Navigating the financial intricacies of living abroad can be daunting for American expats, especially when it comes to understanding the Foreign Bank Account Report (FBAR). 

Whether you’re a seasoned expat or new to the journey, this guide will provide clear, actionable insights to help you stay compliant and confident.

What is FBAR?

The Foreign Bank Account Report (FBAR) is an essential requirement for American expats. If you have more than $10,000 in foreign accounts at any point during the year, you must file an FBAR using FinCEN Form 114. This form is separate from your tax return and must be submitted to the Financial Crimes Enforcement Network (FinCEN).

The FBAR helps the U.S. government track foreign financial accounts and prevent tax evasion. By reporting these accounts, you provide transparency and avoid severe penalties. Importantly, the FBAR is purely informational—it does not impose taxes on the reported accounts.

Who needs to file FBAR?

Filing an FBAR is a legal requirement for specific groups of people and entities. Here’s a breakdown of who needs to file:

Criteria for who must file an FBAR

• U.S. citizens and residents: Any U.S. citizen or resident (including those with dual citizenship) who has a financial interest or signature authority over foreign financial accounts must file an FBAR if the total value of these accounts exceeds $10,000 at any point during the calendar year.
• Entities: This requirement also extends to U.S.-based entities, including corporations, partnerships, limited liability companies (LLCs), trusts, and estates. If these entities hold foreign accounts meeting the threshold, they must file an FBAR.
• Financial interest: You have a financial interest in an account if you are the owner of record or holder of legal title, regardless of whether the account generates income.
• Signature authority: Even if you do not own the account, you may need to file an FBAR if you have signature authority. This means you can control the disposition of assets in the account through direct communication with the institution holding the account. This could apply to situations where you manage accounts on behalf of someone else, such as a relative or an employer.
• Threshold calculation: The $10,000 threshold is calculated based on the aggregate maximum value of all foreign financial accounts at any time during the year. This means if you have multiple accounts, their combined highest value determines whether you need to file.

Example: 

If you have two foreign accounts, one with a maximum value of $6,000 and another with a maximum value of $5,000, the total is $11,000. Since this exceeds $10,000, you must file an FBAR.

Types of accounts and assets to report

When it comes to filing the FBAR, it’s important to know which types of foreign accounts and assets must be reported. This section will help you understand what needs to be included and some special cases where exemptions apply.

Types of foreign accounts that need to be reported

Bank accounts

• Any checking, savings, or deposit accounts held with a foreign bank.
• This includes accounts where you may have no personal income, but have signature authority or other financial interest.

Brokerage accounts

Accounts that hold foreign securities, commodities, or other investment assets.

These accounts must be reported even if you do not derive income from them.

Mutual funds

• Foreign mutual funds or similar pooled funds.
• The total value of the funds needs to be calculated and reported if it exceeds the $10,000 threshold.

Trusts

• Foreign trust accounts where you have a financial interest or signature authority.
• If you are a beneficiary of a foreign trust, this might also need to be reported.

Other financial accounts

• Retirement accounts such as foreign pensions, annuities, and life insurance policies with a cash value.
• Accounts held at foreign branches of U.S. banks.
• Foreign-issued life insurance or annuity contracts with a cash surrender value.

Exemptions and special cases

Certain joint accounts

• If you share a joint account with a spouse, both must file an FBAR unless all accounts are joint and the spouse consents to be reported on the same form.
• If you are listed as having signature authority over an account but have no financial interest, you may still need to report it.

Trust beneficiaries

If you are a beneficiary of a foreign trust, you may need to file an FBAR depending on your interest in the trust and its financial accounts.

Accounts owned by governmental entities

Accounts owned by international financial institutions or U.S. government entities are exempt from FBAR reporting.

U.S. military banking facilities

Accounts maintained on U.S. military banking facilities operated by a U.S. financial institution are not considered foreign financial accounts and are exempt from FBAR reporting.

How to file FBAR

Filing an FBAR might seem complicated at first, but with the right guidance, it becomes a manageable task. Here’s a step-by-step guide to help you through the process, including information on how Expatfile, a partner of SavvyNomad, can assist you:

Step-by-step guide to filing FBAR by yourself

1) Gather your account information

• Collect the necessary details for each foreign account, including the account number, the maximum value during the year, and the financial institution’s name and address.
• Ensure you have accurate records for all foreign accounts.

2) Access the BSA e-filing system

• Go to the BSA E-Filing System to submit your FBAR electronically.
• Create an account if you don’t have one, or log in if you do.

3) Complete FinCEN Form 114

• Select “Report of Foreign Bank and Financial Accounts (FBAR)” from the list of forms.
• Enter the gathered account information accurately into the form.
• Review the form thoroughly to ensure all information is correct.

4) Submit the form

• Once you’ve reviewed the form, submit it electronically through the BSA E-Filing System.
• You will receive a confirmation once your submission is complete.

Deadlines and extensions

• Annual Deadline: The FBAR must be filed by April 15th each year, in line with the U.S. tax deadline.
• Automatic Extension: There is an automatic extension to October 15th for those who miss the April deadline.
• Requesting Additional Extensions: If needed, you can request further extensions, but the automatic extension generally suffices for most filers.

Consequences of non-compliance

Filing the FBAR is not just a bureaucratic formality; failing to comply with FBAR requirements can lead to significant penalties. Here’s what you need to know about the consequences of non-compliance and how to avoid them:

Penalties for failing to file FBAR

Civil penalties

• Non-Willful Violation: If you fail to file the FBAR but your failure is not willful, you can still face a penalty of up to $10,000 per violation. However, a recent Supreme Court ruling in 2023 clarified that this penalty applies per report rather than per account. This means the maximum penalty is $10,000 per year, regardless of the number of accounts involved  .
• Willful Violation: If you knowingly fail to file the FBAR or provide inaccurate information, the penalties are much steeper. Willful violations can result in a penalty of $100,000 or 50% of the account balance at the time of the violation, whichever is greater. This penalty can be applied for each year of non-compliance, potentially accumulating to substantial amounts.

Criminal Penalties

In cases of willful non-compliance, criminal penalties can be imposed, including fines up to $250,000 and imprisonment for up to five years. If the violation is part of a pattern of illegal activity, the penalties can be even more severe, with fines up to $500,000 and imprisonment for up to ten years  .

Notable Cases: Several high-profile cases highlight the seriousness of FBAR violations. For example, in 2023, the Supreme Court ruling in the case of Bittner v. United States clarified that non-willful penalties should be capped at $10,000 per year. This ruling significantly reduced the potential penalties for many taxpayers who were previously facing much higher fines due to multiple accounts being penalized individually .

How to avoid penalties

Timely and accurate filing

• Ensure you file your FBAR accurately and on time. Use reliable resources and professional assistance if needed.
• Keep detailed records of all foreign accounts, including account statements and correspondence.

Voluntary disclosure programs

If you realize you’ve failed to file previous FBARs, take advantage of voluntary disclosure programs like the IRS’s Streamlined Filing Compliance Procedures. These programs allow you to catch up on filings with reduced or no penalties, provided you meet specific criteria  .

Use expert services

Consider using professional services like Expatfile, a partner of SavvyNomad, which specializes in helping expats manage their FBAR filings. Professional assistance can help ensure compliance and avoid common pitfalls.

Common myths and misconceptions

Understanding FBAR requirements is crucial for American expats, but there are many myths and misconceptions that can lead to confusion. Here, we address some of the most common misunderstandings about FBAR.

“FBAR is not necessary if taxes are paid”

Paying taxes on your foreign income does not exempt you from filing an FBAR. The FBAR is a separate requirement designed to report the existence of foreign financial accounts, not the income they generate. Even if you have reported all your foreign income on your tax return and paid taxes accordingly, you still need to file an FBAR if the aggregate value of your foreign accounts exceeds $10,000 at any time during the year  .

“Small accounts don’t need to be reported”

The $10,000 threshold applies to the aggregate value of all your foreign accounts combined. This means if you have multiple small accounts that collectively exceed $10,000, you must report all of them. For example, having three accounts with balances of $4,000, $3,000, and $4,000 respectively would require you to file an FBAR because their combined value is $11,000  .

“Joint accounts don’t need to be reported”

Joint accounts are not exempt from FBAR reporting. If you have a financial interest in or signature authority over a joint account, it must be included in your FBAR filing. This applies regardless of whether the account is shared with a spouse or another individual  .

“FBAR only applies to personal accounts”

FBAR requirements extend beyond personal accounts to include any account over which you have signature authority or a financial interest, even if it is for a business or on behalf of someone else. This includes accounts held by entities such as corporations, partnerships, and trusts  .

“Foreign retirement accounts are not reportable”

Many types of foreign retirement accounts are indeed reportable on the FBAR. This includes accounts like Canadian Registered Retirement Savings Plans (RRSPs), Australian Superannuation funds, and similar accounts in other countries. These must be reported if their aggregate value, along with other foreign accounts, exceeds $10,000  .

SavvyNomad domicile services for expats

Establishing and maintaining a domicile in a zero income tax state can offer significant financial benefits for American expats. SavvyNomad provides comprehensive domicile services to help you navigate this process effectively.

What is a Domicile?

• Your domicile is your permanent home, the place you intend to return to after any temporary absence. It’s crucial for determining state tax obligations.
• Establishing a domicile in a state with no income tax can help you legally minimize your tax liability.

Why domicile matters for expats

Some states tax worldwide income regardless of where you live. By establishing domicile in a zero income tax state, you can avoid paying state income taxes on your global earnings.

How SavvyNomad helps

Guidance on Establishing Residency

SavvyNomad provides detailed guidance on the requirements for establishing residency in zero income tax states. This includes documentation and procedural steps.

We offer support for various logistical needs, such as finding a new residence, registering vehicles, and updating addresses with financial institutions.

Maintaining residency compliance

SavvyNomad helps ensure ongoing compliance with state residency requirements. This includes advice on managing extended stays outside the state and maintaining ties to your domicile.

We provide continuous support to navigate any challenges that arise, ensuring your domicile status remains intact.

Benefits of Having a Domicile in a Zero Income Tax State

Tax savings

Establishing domicile in a zero income tax state can lead to substantial savings on state income taxes. This is particularly beneficial for expats earning income abroad and looking to avoid double taxation.

Legal considerations and inheritance

SavvyNomad ensures that all legal requirements for establishing and maintaining domicile are met, reducing the risk of disputes with tax authorities.

Proper domicile planning can also impact inheritance laws and ensure your assets are protected and distributed according to your wishes.

Residential address for legal purposes

SavvyNomad provides a residential address for legal purposes, essential for various legal and administrative processes. They assist with updating your address with financial institutions, government agencies, and other relevant entities.

FBAR FAQ

What is the maximum balance for FBAR?

The maximum balance for FBAR is the highest value your foreign financial accounts reach at any point during the calendar year. If the combined total of these accounts exceeds $10,000 at any time during the year, you must file an FBAR. Each account's maximum balance must be converted to U.S.dollars using the year's end exchange rate.

How much money can I have in a foreign bank account?

There is no limit to the amount of money you can have in a foreign bank account. However, U.S. persons (citizens, residents, corporations, partnerships, trusts, and estates) must file an FBAR (FinCEN Form 114) if the aggregate value of their foreign financial accounts exceeds $10,000 at any point during the calendar year. This means that if the total of all your foreign accounts combined exceeds $10,000, you are required to report them.

How do I check if I have filed FBAR?

To check if you have filed an FBAR, you can follow these steps:

1. Review your records: Check your personal records for a copy of the filed FBAR. Retaining a copy is part of the record-keeping requirements and helps verify if you have filed.
2. BSA e-filing system: Log in to the BSA E-Filing System to check the status of your FBAR filings. The system should have records of your submissions.
3. Contact FinCEN: If you cannot find your records, you can contact the Financial Crimes Enforcement Network (FinCEN) Regulatory Helpline at 800-949-2732 (inside the U.S.) or 703-905-3975 (outside the U.S.) for assistance. They can verify your filing status.
4. Written request: Submit a written request to the IRS for confirmation. They will send you a letter stating whether an FBAR was filed and, if so, the date it was filed.

What is the penalty for filing FBAR?

f you fail to file an FBAR (Report of Foreign Bank and Financial Accounts), the penalties can be severe and vary depending on whether the violation is considered willful or non-willful:

Non-willful violations

• Penalty: The penalty for non-willful failure to file an FBAR can be up to $10,000 per violation. This amount can be adjusted for inflation. Recent court rulings, such as the Supreme Court decision in the Bittner case, have clarified that the penalty is applied per form, not per account, meaning the total penalty is capped at $10,000 per year, regardless of the number of accounts.

Willful violations

• Penalty: For willful violations, the penalties are much steeper. The standard penalty is the greater of $100,000 or 50% of the account's maximum balance at the time of the violation, for each year the FBAR was not filed. The total penalty for willful violations can therefore accumulate significantly if multiple years are involved.
• Criminal Penalties: In addition to civil penalties, willful violations can also lead to criminal penalties, including fines up to $250,000 and imprisonment for up to five years, or both, especially if the non-compliance is associated with other illegal activities like tax evasion or money laundering.

Who is eligible for FBAR in 2024?

A U.S. person must file an FBAR if they have a financial interest in or signature authority over foreign financial accounts and the aggregate value of those accounts exceeds $10,000 at any time during the calendar year. A U.S. person includes:

• U.S. citizens and residents: This covers anyone who is a U.S. citizen or a resident alien of the United States, including those with a green card or those who meet the substantial presence test (typically residing in the U.S. for at least 183 days during the year)​ 
• Entities: This includes corporations, partnerships, limited liability companies (LLCs), trusts, and estates formed under U.S. law​

The types of accounts that must be reported include bank accounts, brokerage accounts, mutual funds, trusts, and other financial accounts held outside the United States.

Does a spouse have to file a separate FBAR?

A spouse is not required to file a separate FBAR if the following conditions are met:

1. Joint ownership: All reportable financial accounts of the non-filing spouse are jointly owned with the filing spouse.
2. Timely filed FBAR: The filing spouse reports all the jointly owned accounts on a timely filed FBAR.
3. Form 114a: Both spouses must complete and sign FinCEN Form 114a, "Record of Authorization to Electronically File FBARs," which authorizes one spouse to file on behalf of both. This form should be kept with the filer's records.

If these conditions are not met, then each spouse must file a separate FBAR, and each must report the full value of the jointly owned accounts.

Do I need to file an FBAR if the account is closed?

Yes, you still need to file an FBAR if the account was closed during the year, provided the aggregate value of all your foreign financial accounts exceeded $10,000 at any time during the year. The requirement to file an FBAR is based on the highest aggregate value of your accounts throughout the year, not whether the accounts were open or closed at the end of the year.

For instance, if you had a foreign account that was closed in February but its balance, along with your other foreign accounts, exceeded $10,000 at any point during the year, you must include it in your FBAR filing. 

Closing the account does not eliminate the requirement to report it for the period it was active.

What if I have never filed an FBAR?

If you have never filed an FBAR and realize you are required to, it's important to take action as soon as possible to mitigate potential penalties. Here are the steps you can take:

Determine your eligibility:

Verify whether you need to file an FBAR. You must file if you are a U.S. person with foreign financial accounts that had an aggregate value exceeding $10,000 at any time during the calendar year.

File the delinquent FBAR:

Use the BSA E-Filing System to file the FBAR electronically. Include a statement explaining why the FBAR is being filed late. This can help if your non-filing was non-willful and due to negligence or an honest mistake.

Use IRS compliance programs:

• Streamlined filing compliance procedures: If your failure to file was non-willful, you might be eligible for this program, which offers a simplified process for becoming compliant and potentially avoiding penalties.
• Delinquent FBAR submission procedures: If you have no additional tax liabilities from your foreign accounts, you can file the delinquent FBAR without facing a penalty.
• Voluntary disclosure program: For those who may have willfully failed to file, this program helps to disclose previously unreported foreign accounts while minimizing the risk of criminal prosecution.

Seek professional assistance:

Consulting with a tax professional or attorney specializing in international tax law can provide guidance tailored to your specific situation and help ensure that you follow the correct procedures.

Taking prompt action to address unfiled FBARs is crucial. Doing so before the IRS contacts you can significantly reduce the risk of facing penalties.

Is FBAR required for non-residents?

The requirement to file an FBAR (Foreign Bank Account Report) depends on your status as a U.S. person:

U.S. persons: Any U.S. person, including U.S. citizens, resident aliens (green card holders), and entities such as corporations, partnerships, and trusts, must file an FBAR if they have foreign financial accounts exceeding $10,000 in aggregate value at any time during the calendar year. This requirement applies regardless of where they reside globally.

Resident aliens: Non-U.S. citizens who are considered resident aliens under the substantial presence test also need to file an FBAR. This test includes individuals who spend a significant amount of time in the U.S. within a specified period, typically 183 days over three years, including at least 31 days in the current year.

Non-residents: Non-residents who do not meet the substantial presence test or do not have a green card are generally not required to file an FBAR. However, exceptions can occur if they have sufficient ties to the U.S. that qualify them as resident aliens for tax purposes.

Can I file FBAR myself?

Yes, you can file the FBAR yourself. Here’s how you can do it:

1. BSA e-filing system: The FBAR (FinCEN Form 114) must be filed electronically using the BSA E-Filing System. You don't need to register for an account if you are filing as an individual.
2. Choose your filing method:
   • Online form: You can fill out and submit the form directly online. This method is straightforward and allows for immediate submission.
   • PDF form: You can download the PDF version of the FBAR form, fill it out offline, and then upload it to the BSA E-Filing System. This option allows you to work at your own pace and save your progress.
3. Information needed: Ensure you have all necessary information ready, including the account numbers, the maximum account values during the year, and the names and addresses of the financial institutions where your accounts are held.
4. Submission: After completing the form, review all entries for accuracy. Once confirmed, submit the form electronically through the BSA E-Filing System.
5. Confirmation: After submission, you will receive a confirmation email from the BSA E-Filing System. Save this confirmation for your records.

Is the FBAR mandatory?

Yes, the FBAR (Report of Foreign Bank and Financial Accounts) is mandatory for certain U.S. persons. Specifically, any U.S. person, including U.S. citizens, residents, corporations, partnerships, limited liability companies (LLCs), trusts, and estates, 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.

What exchange rate to use for FBAR?

When filing an FBAR (FinCEN Form 114), you need to convert the maximum value of your foreign financial accounts into U.S. dollars. The appropriate exchange rate to use is the Treasury's Financial Management Service rate for the last day of the calendar year.

Here are the steps:

1. Determine maximum value: Identify the highest value of each foreign account in its local currency during the calendar year.
2. Convert to USD: Use the exchange rate published by the U.S. Treasury's Financial Management Service for December 31 of the reporting year. If there is no specific Treasury rate available for the currency, you may use another verifiable exchange rate and must provide the source of that rate.

What is the difference between FBAR and FATCA reporting?

FBAR (Foreign Bank Account Report) and FATCA (Foreign Account Tax Compliance Act) are both U.S. regulations designed to track foreign financial accounts, but they have distinct requirements and purposes:

Thresholds and filing requirements:

• FBAR: U.S. persons (citizens, residents, entities) must file an FBAR if they have a financial interest in or signature authority over foreign accounts with an aggregate value exceeding $10,000 at any time during the calendar year. The FBAR is filed separately from the tax return with the Financial Crimes Enforcement Network (FinCEN)
• FATCA: Under FATCA, U.S. taxpayers must file Form 8938 if their specified foreign financial assets exceed certain thresholds. These thresholds vary based on filing status and whether the taxpayer resides in the U.S. or abroad. For example, single taxpayers living in the U.S. must file if their assets exceed $50,000 on the last day of the year or $75,000 at any time during the year. Expats have higher thresholds, such as $200,000 on the last day of the year or $300,000 at any time during the year

Types of reportable assets:

• FBAR: Requires reporting of foreign bank and financial accounts.
• FATCA: Requires reporting of a broader range of foreign financial assets, including foreign bank accounts, stocks, securities, interests in foreign entities, and certain other financial instruments.

Filing mechanism and deadlines:

• FBAR: Filed electronically with FinCEN by April 15, with an automatic extension to October 15. It is not filed with the IRS
• FATCA: Form 8938 is filed with the taxpayer's annual federal income tax return, due on April 15, with possible extensions

Penalties:

• FBAR: Non-willful violations can result in a penalty up to $10,000 per violation. Willful violations can incur penalties of the greater of $100,000 or 50% of the account balance per violation, per year. Criminal penalties may also apply
• FATCA: Failing to file Form 8938 can result in a penalty of $10,000, with additional penalties up to $50,000 for continued failure after IRS notification. There can also be a 40% penalty on understatements of tax attributable to non-disclosed assets

What happens if I forget to file my FBAR?

If you forget to file your FBAR, it's important to address the issue promptly to avoid potential penalties. 

Here are the steps you can take and the potential consequences:

File the FBAR as soon as possible:

• Self-file: Use the BSA E-Filing System to file your delinquent FBAR. Include an explanation for the late filing.
• Streamlined filing compliance procedures: If your failure to file was non-willful, you might qualify for this IRS program, which helps taxpayers avoid penalties. You'll need to file the last three years of delinquent or amended tax returns and up to six years of FBARs.

Penalties:

• Non-willful violations: Typically, the penalty is up to $10,000 per year for each year the FBAR was not filed. The IRS has the discretion to assess lower penalties based on the circumstances.
• Willful violations: Penalties can be much higher, up to the greater of $100,000 or 50% of the account balance at the time of the violation, per year. In severe cases, criminal penalties, including fines and imprisonment, may apply.

IRS contact

If the IRS identifies that you have not filed an FBAR, they will send you a letter requesting information about your foreign accounts. Depending on your response and the circumstances, penalties may be assessed.

Reasonable cause

If you can demonstrate that your failure to file was due to reasonable cause and not willful neglect, you may avoid penalties. This requires a detailed explanation and supporting documentation.

Voluntary disclosure

For those who missed filing multiple years, using the IRS's Voluntary Disclosure Program can help you come into compliance and minimize penalties.

What happens if you make a mistake on an FBAR?

If you realize that you've made a mistake on your FBAR (Foreign Bank Account Report), it's important to correct it as soon as possible. Here are the steps you can take and what you can expect:

Submit an amended FBAR 

If you discover an error, you need to file an amended FBAR. This is done using the same BSA E-Filing System that you used for the original submission. Clearly indicate that it is an amended report and provide the correct information.

Potential penalties

• Non-willful mistakes: If the mistake was non-willful, the IRS generally shows leniency, especially if you correct it promptly. Penalties may be avoided if you can demonstrate that the error was due to reasonable cause and not negligence.
• Willful mistakes: If the mistake is deemed willful, penalties can be severe. This can include fines and potentially even criminal charges if the misreporting was intentional.

Programs for correction:

• Delinquent FBAR submission procedures: If you properly reported and paid tax on all your foreign accounts but simply missed the FBAR filing, you can use this procedure. The IRS typically does not impose penalties if you meet the criteria.
• Streamlined filing compliance procedures: If you failed to file an FBAR due to non-willful conduct, you can use the streamlined procedures. This involves filing delinquent FBARs and possibly amending past tax returns.

Reasonable cause statement:

If you believe you have a reasonable cause for the mistake, include a detailed explanation when you submit the amended FBAR. This can help mitigate potential penalties.

What triggers FBAR?

The requirement to file an FBAR (Foreign Bank Account Report) is triggered if the following conditions are met:

1. U.S. person: The filer must be a U.S. person, which includes U.S. citizens, U.S. residents, and entities such as corporations, partnerships, LLCs, trusts, and estates formed under U.S. law​
2. Financial interest or signature authority: The U.S. person must have a financial interest in, or signature authority over, one or more foreign financial accounts.
3. Aggregate value threshold: The combined value of all foreign financial accounts must exceed $10,000 at any time during the calendar year​ 

If these conditions are met, an FBAR must be filed for that year. The threshold of $10,000 applies to the total value across all accounts, not to each account individually. Therefore, even if no single account exceeds $10,000, the total combined value of all accounts reaching or exceeding $10,000 triggers the requirement to file an FBAR​.