A Blog Post

Foreign Bank Account Reporting (FBAR)

FBAR-form-blogFBAR rules are confusing.

Foreign bank account reporting has created chaos for accidental Americans and expats living outside of the U.S. as it is more difficult than ever before to open an account (as a U.S. person) with a bank outside of the U.S.

 

What do I need to report?

If you have foreign financial accounts with a combined balance greater than $10,000 you need to report them. These include bank accounts, brokerage accounts, mutual funds, private retirement accounts, life insurance (with cash value) accounts, FX trading accounts, derivatives accounts and any financial instruments accounts, which are held by an institution outside the U.S.

Do I need to report my employer provided (pillar 2) pension?

No, this does not need to be reported if it is controlled or supervised by an employer or is a traditional defined benefit plan.

Do I need to report my private (pillar 3) pension?

Yes. While the instructions don’t provide complete clarity on this there has been communication from the IRS to tax practitioners indicating that these should be reported.

What value do I need to report?

You need to report the maximum account value of each financial account. You can do this by taking the highest daily balance in the year or by using periodic account statements to determine the highest balance. The foreign currency will then need to be converted to U.S. dollars per the year-end exchange rates provided by the U.S. treasury department.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Treasury-Department-End-of-Year-Exchange-Rates

Doesn’t this create double reporting if I opened and closed an account during the year?

Yes, this does create double reporting but this is the requirement mandated from the U.S. treasury department. If you are subject to OVDP or OVDI penalties the double counting is eliminated in determining the penalty base.

I’m able to buy groceries and withdraw funds from my spouses account but I’m not listed as an owner. Do I have to report this?

Yes, this would be considered ‘signature authority’ and should be reported.

I’m the treasurer of my local church and pay the bills and manage the monthly budget and my name is listed on the account with my bank. Do I have to report this?

Yes, this would be considered ‘signature authority’ and should be reported.

Do I file the FBAR with my tax filings?

No, this is filed separately with the BSA e-filing system, which is operated by the U.S. treasury department.
http://bsaefiling.fincen.treas.gov/main.html

Can I mail the paper form in or do I have to file electronically?

Electronic filing is now mandatory.

What is the filing deadline?

June 30

The verdict:

Foreign bank account reporting has created chaos for accidental Americans and expats living outside of the U.S. as it is more difficult than ever before to open an account (as a U.S. person) with a bank outside of the U.S.

I believe foreign banks have a right to be reluctant to accept American clients because 1) they are more expensive due to the reporting requirements and, 2) they subject the bank to a higher legal liability than non-U.S. people.

The other criticism I have is that the maximum account values must be reported.

This inevitably creates double reporting and is a cardinal sin of accounting, which accountants try to avoid like the plague. It would be simpler, more beneficial and more transparent to use a date-based value such as a year-end value for the reporting amount.

However, FBAR’s are the first step in creating transparency in offshore tax evasion and is a critical component to FATCA (foreign account tax compliance act). While the overall system has reporting hurdles it may achieve more transparency due to the fact that banks simply won’t accept Americans any longer due to there associated costs and liability. The big downside to this is that regular, working American’s (whom live overseas) will be affected most and the rich guys will still be attractive enough to make it worthwhile for the banks.