A Guide to Foreign Bank Account Reporting for U.S. Citizens and Residents

General note: This article is for general tax education only and does not constitute legal or tax advice. FBAR cases can involve substantial penalties, and the risk rises significantly when the IRS believes a taxpayer willfully failed to file.

I. What Is an FBAR?

FBAR stands for Report of Foreign Bank and Financial Accounts, and the official form is FinCEN Form 114. The FBAR is a report of foreign financial account information required under the U.S. Bank Secrecy Act, and it covers foreign bank accounts, securities accounts, brokerage accounts, mutual fund accounts, and similar accounts. The FBAR is not filed with the individual income tax return, Form 1040; it is filed separately and electronically through FinCEN's BSA E-Filing System.

The FBAR is an information return; it is not itself used to compute income tax. However, if a foreign account generates interest, dividends, capital gains, or other income, that income may still need to be reported on the U.S. income tax return.

II. Who Must File FBAR Form 114?

A taxpayer who is a U.S. person generally must file an FBAR if both of the following conditions are met:

• The taxpayer has a financial interest in, signature authority over, or other authority over one or more foreign financial accounts; and
• The aggregate maximum value of all foreign financial accounts exceeded $10,000 on any day during the year.

The IRS explains that U.S. persons include U.S. citizens, U.S. residents, corporations, partnerships, LLCs, trusts, and estates. For individuals, common filers include U.S. citizens, green card holders, and resident aliens who meet the U.S. tax residency rules.

Note in particular that the FBAR filing obligation does not depend on whether the account generates income. Even if a foreign account has no interest, no dividends, and no transactions, an FBAR may still be required as long as the account value reaches the filing threshold. The IRS states clearly that whether an account produces taxable income has no bearing on whether it is a foreign financial account for FBAR purposes.

III. Which Accounts Are Foreign Financial Accounts?

In general, accounts held at financial institutions located outside the United States may be foreign financial accounts that must be reported on the FBAR. Common accounts include:

In its comparison of the FBAR and Form 8938, the IRS notes that financial accounts located at foreign financial institutions are within the scope of FBAR reporting; accounts at foreign branches of U.S. financial institutions may also be within FBAR scope, while accounts at U.S. branches of foreign financial institutions are generally not.

IV. The FBAR Filing Threshold: Not a Single Account Over $10,000, but All Accounts Combined Over $10,000

Many taxpayers mistakenly believe that filing is required only if a single foreign account exceeds $10,000. In fact, the FBAR looks at the aggregate maximum value of all foreign financial accounts. If the combined maximum value of multiple foreign accounts exceeds $10,000 on any day during the year, the filing obligation may be triggered. FinCEN likewise explains that an FBAR must be filed if the maximum value of a single account, or the combined maximum values of multiple accounts, exceeds $10,000.

For example:

Although no single account exceeds $10,000, the combined maximum value of the three accounts is $12,000, so an FBAR may be required.

V. Key Point: The FBAR Uses the Maximum Value for the Year, Not the Year-End Balance

One of the most common FBAR mistakes is looking only at the December 31 year-end balance. In fact, the FBAR requires reporting each account's maximum account value for the year, that is, the highest value of the account at any point during the year, not the year-end balance. FinCEN explains that the maximum value is a reasonable approximation of the greatest value of the account during the year, and periodic bank statements may be used to determine it, as long as those statements fairly reflect the maximum value for the year.

For example:

In this case, the FBAR should not simply show the $5,000 year-end balance; it should report based on the maximum value for the year of approximately $200,000.

For a foreign-currency account, first determine the maximum foreign-currency amount in the account during the year, then convert it to U.S. dollars. FinCEN explains that foreign-currency accounts should be converted using the Treasury exchange rate for the last day of the year; if no Treasury rate is available for that currency, another verifiable exchange rate may be used, and the source of the rate should be retained. Amounts must be reported in U.S. dollars and rounded up to the next whole dollar.

VI. FBAR Deadline

The FBAR is an annual report, generally due on April 15 following the end of the calendar year being reported. If it is not filed by April 15, the deadline is automatically extended to October 15, with no separate extension request required. The IRS explains that the FBAR must be filed electronically through FinCEN's BSA E-Filing System and cannot be filed with the federal income tax return.

For example:

If a deadline falls on a weekend or legal holiday, or is extended because of a natural disaster, the actual date may be adjusted; confirm the date again before filing.

VII. What Documents Should You Prepare Before Filing an FBAR?

The IRS requires taxpayers to keep records for each reportable account, including the name on the account, the account number, the name and address of the foreign bank, the type of account, and the maximum value during the year; these records generally must be kept for 5 years from the FBAR due date.

We recommend that taxpayers prepare the following:

VIII. FBAR Audits in Practice: The IRS May Ask About Related Transfer Accounts

Based on actual FBAR audit experience, examiners usually do not look only at the foreign accounts already reported. If a reported account shows large incoming or outgoing transfers, the IRS may go on to ask which account the funds came from, which account they went to, who owns that account, and whether that account should also have been reported on the FBAR.

Common audit questions include:

• Which account did this money come from?
• Is the sending account the taxpayer's own account?
• If it is a foreign account, why was it not reported?
• If the account belongs to a relative, a company, or someone else, is there proof?
• Was the transfer income, a gift, a loan, an inheritance, proceeds from an asset sale, or a movement of funds between the taxpayer's own accounts?
• Did that foreign account generate interest income? Has that income been reported on the U.S. tax return?

We therefore recommend that taxpayers prepare not only the FBAR itself but also a complete explanation of the flow of funds. For large transfers in particular, keep bank statements, wire transfer confirmations, purchase and sale contracts, gift statements, loan agreements, estate documents, pay stubs, corporate dividend documents, or other proof of source.

IX. Joint Accounts: The Full Account Value Is Generally Reported

If a foreign account is held jointly, each joint owner generally must report the full value of the account, not just their own nominal share. FinCEN's instructions state that each joint owner must report the entire value of the account under the rules for Item 15.

For example, a married couple jointly owns a foreign account with a maximum value of $100,000 for the year. Even if one spouse considers their share to be only 50%, the FBAR generally must still reflect the full $100,000 value of the account. In certain cases, one spouse may authorize the other to file on their behalf using Form 114a, but whether the conditions for this exception are met requires a case-specific determination.

X. How the FBAR Relates to Income Tax Filing: Foreign Interest Income Is Still Taxable

The FBAR is an information return, not an income tax return. However, U.S. citizens and resident aliens generally must report and pay U.S. tax on their worldwide income, including income from sources both within and outside the U.S. The IRS explains that U.S. citizens and resident aliens are taxed on worldwide income and must correctly report wages and other income on Form 1040.

Therefore, interest from foreign bank accounts, dividends and capital gains from foreign securities accounts, and other income from foreign accounts generally all need to be checked to determine whether they must be reported on the U.S. tax return. Part III of Schedule B also asks whether you have foreign financial accounts and generally requires you to identify the country where the accounts are located; the IRS guidance on reporting foreign income also notes that affected taxpayers in most cases need to attach Schedule B to report information about their foreign accounts.

Common mistakes include:

XI. The FBAR and Form 8938 Are Different and Cannot Substitute for Each Other

FBAR Form 114 and IRS Form 8938 are two separate foreign asset reporting regimes. Form 8938 is filed with the IRS as part of the income tax return; the FBAR is filed separately through the FinCEN system. The IRS states clearly that the Form 8938 filing requirement does not replace or otherwise affect the FBAR filing obligation, and taxpayers must determine separately whether they need to file Form 8938, the FBAR, or both.

A simple comparison:

XII. What If You Did Not File FBARs in the Past?

If a taxpayer has not filed FBARs in the past, the right approach depends on the facts, including whether foreign income was omitted, whether tax is owed, whether the IRS has already made contact, whether the taxpayer is under audit or criminal investigation, and whether the failure to file was non-willful.

1. Delinquent FBAR Submission Procedures

A taxpayer may consider the Delinquent FBAR Submission Procedures if the taxpayer does not need to use the Streamlined procedures or the Criminal Investigation Voluntary Disclosure Practice to file delinquent or amended tax returns, has not filed required FBARs, is not currently under a civil examination or criminal investigation by the IRS, and has not been contacted by the IRS about the delinquent FBARs. The IRS explains that taxpayers should file the delinquent FBARs according to the FBAR instructions and include a statement explaining why they are filing late.

If the taxpayer has properly reported and paid tax on the income from the foreign accounts on their U.S. tax returns and has not been contacted by the IRS about the relevant years, the IRS states that it will not impose a penalty for filing these delinquent FBARs; however, while the FBARs will not be automatically audited, they may still be selected for examination.

2. Streamlined Foreign Offshore Procedures for Taxpayers Residing Abroad

A taxpayer who resides outside the United States and whose past failure to report foreign financial assets, pay tax, or file FBARs resulted from non-willful conduct may be able to consider the Streamlined Foreign Offshore Procedures. The IRS defines non-willful conduct as conduct due to negligence, inadvertence, or mistake, or conduct that is the result of a good-faith misunderstanding of the requirements of the law. For U.S. citizens or green card holders, this generally requires that, in at least one of the three most recent years for which the U.S. tax return due date has passed, the taxpayer did not have a U.S. abode and was physically outside the United States for at least 330 full days.

Taxpayers who qualify for the Streamlined Foreign Offshore Procedures generally must file delinquent or amended U.S. tax returns for the most recent 3 years and delinquent FBARs for the most recent 6 years, and pay the tax and interest due. If the taxpayer qualifies and completes the procedures, the IRS explains that the taxpayer will not be subject to failure-to-file, failure-to-pay, accuracy-related, information return, or FBAR penalties.

Foreign Streamlined penalty amount: generally a 0% FBAR penalty, but the tax and interest arising from the omitted income must still be paid.

3. Streamlined Domestic Offshore Procedures for Taxpayers Residing in the U.S.

A taxpayer who resides in the United States, does not meet the non-residency requirement of the foreign Streamlined procedures, has previously filed U.S. tax returns as required for the most recent three years, and whose failure to report foreign accounts, foreign income, or related international information returns was non-willful may consider the Streamlined Domestic Offshore Procedures. The IRS explains that taxpayers using the domestic Streamlined procedures generally must amend their tax returns for the most recent 3 years, file delinquent FBARs for the most recent 6 years, and pay the Title 26 miscellaneous offshore penalty.

Domestic Streamlined penalty amount: generally 5%. The 5% is calculated on the highest aggregate annual value of the foreign financial assets subject to the penalty during the covered tax return period and the covered FBAR period. The IRS explains that the highest aggregate value here is determined by adding up the year-end account balances and year-end asset values for each year and selecting the highest year.

Example:

Note the distinction here: ordinary FBAR filing uses the maximum value for the year, but the 5% Streamlined Domestic penalty is generally calculated using the year-end account balances and year-end asset values for the relevant years.

XIII. Important Limitations of the Streamlined Procedures

The Streamlined procedures are available only when the taxpayer can certify that their conduct was non-willful. The IRS explains that if the IRS has initiated a civil examination of the taxpayer's returns for any tax year, even one not necessarily related to foreign financial assets, the taxpayer is not eligible for the Streamlined procedures; a taxpayer under IRS Criminal Investigation is also not eligible.

In addition, a Streamlined submission does not result in a formal closing agreement with the IRS. The IRS explains that returns submitted under the Streamlined procedures are processed like any other return, receipt is not automatically acknowledged, and the case is not closed with a signed closing agreement; these submissions are not automatically audited, but they may still be selected for examination or checked against information from banks, financial advisors, and other sources.

XIV. Penalties for Failing to File an FBAR

FBAR penalties depend on the specific facts, particularly whether the IRS considers the taxpayer's conduct non-willful, willful, or due to reasonable cause. The IRS explains that FBAR filing or recordkeeping violations may result in civil penalties or criminal penalties, and the maximum civil penalty amounts are adjusted for inflation.

XV. FBAR Compliance Checklist

Before filing an FBAR, we recommend checking each of the following:

• Have all foreign accounts been listed, including accounts closed during the year?
• Are joint accounts included?
• Are accounts over which you have only signature authority or other authority included?
• Have all foreign accounts been aggregated to determine whether the total exceeds $10,000?
• Was the maximum value for the year used, rather than the year-end balance?
• Have monthly statements for the full year, or other records supporting the maximum value, been kept?
• Were foreign-currency accounts converted to U.S. dollars using an appropriate exchange rate?
• Did the foreign accounts generate interest, dividends, or capital gains?
• Has the foreign income been reported on Form 1040, Schedule B, or other relevant forms?
• Has a separate determination been made whether Form 8938 must be filed?
• Have records of large transfers and source-of-funds documents been kept?
• Can you explain who owns the accounts that funds came from or went to?
• If there were past omissions, has an appropriate remediation procedure been evaluated before the IRS makes contact?

XVI. Key Takeaways

U.S. citizens, green card holders, and U.S. tax residents who have a financial interest in, signature authority over, or other authority over foreign financial accounts generally must file FBAR Form 114 if the aggregate maximum value of all foreign accounts exceeds $10,000 at any time during the year.

The most important points of FBAR compliance are:

• The FBAR reports the maximum value for the year, not the year-end balance;
• Whether an account generates income does not affect the FBAR filing obligation;
• But interest, dividends, capital gains, and other income from foreign accounts may still need to be reported for U.S. income tax purposes;
• In an audit, the IRS may ask about related transfer accounts and the source of funds;
• Joint accounts generally require reporting the full account value;
• The FBAR and Form 8938 are separate filings and cannot substitute for each other;
• Under the foreign Streamlined procedures, qualifying taxpayers generally face a 0% FBAR penalty but must still pay tax and interest;
• Under the domestic Streamlined procedures, qualifying taxpayers generally must pay a 5% miscellaneous offshore penalty;
• If the IRS considers the failure to file willful, penalties can be very high and may even involve criminal exposure.

Taxpayers who have not filed FBARs in the past should promptly gather their foreign account information, interest income, transfer records, and source-of-funds documentation, and evaluate before the IRS makes contact whether the Delinquent FBAR Submission Procedures, the Streamlined Foreign Offshore Procedures, the Streamlined Domestic Offshore Procedures, or another compliance approach is appropriate.