The Bank Secrecy Act requires a United States citizen, resident, business entity, trust or estate to report certain foreign financial accounts to the Treasury Department. Such foreign accounts include mutual funds, brokerage accounts and bank accounts. These are reported by filing a Report of Foreign Bank and Financial Accounts (“FBAR”) on FinCEN Form 114.
What is Reported in an FBAR?
A U.S. person, business entity, trust or estate must file an FBAR to report:
- A financial interest, signature authority or some other authority over at least one financial account outside the Unites States if the aggregate value of such foreign accounts exceeded $10,000 at any time during the calendar year reported.
When is an FBAR Not Required to be Filed?
An FBAR is not required to be filed for financial accounts that are:
- Maintained on a United States military banking facility;
- Held in a retirement plan of which you are a participant or beneficiary;
- Held in an individual retirement account you own or are beneficiary of;
- Correspondent/Nostro account;
- Owned by an international financial institution;
- Owned by a governmental entity; or
- Part of a trust of which you are the beneficiary, if a United States person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.
What are the Penalties Associated with FBAR Filings?
Not filing an FBAR or failing to file in a timely manner will result in a violation and may subject you to penalties. Such penalties may include civil monetary and/or criminal penalties. The maximum civil penalty one may be subject to depends on whether the violation was willful, non-willful or negligent. Assertion of penalties depend on the facts and circumstances of each case.
Does an FBAR Penalty Apply Per Form or Per Account?
Per the FBAR instructions, one form is used to report multiple foreign financial accounts. A recent federal district court decision provided guidance on whether the penalty for a non-willful violation is applied per FBAR form required to be filed or per account required to be reported. The Court found that appellant’s failure to report his 17 foreign accounts was non-willful, and that the penalty applied to the FBAR form itself, not the number of accounts required to be shown on the FBAR. Thus, the penalty was capped at $10,000, per the statutory minimum, as opposed to what would have been a $170,000 penalty if the penalty were applied based on the accounts that were required to be reported.
