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As I wrote last week, the average U.S. citizen or Green card holder has two main annual requirements to report to the U.S. government.
Report worldwide INCOME to the Internal Revenue Service (Article HERE)
Report foreign financial ASSETS to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury
This week I'll discuss #2: The U.S. requires that you file a Report of Foreign Bank and Financial Accounts (FBAR) if you meet a threshold of $10,000 at any time during the calendar year.
How do you figure out if you meet this threshold?
Look at all your accounts which you own or have any financial interest OR signature authority, power of attorney, or custodianship.
bank accounts, deposits, jointly owned accounts
investments, brokerage accounts, mutual funds
savings funds like the Israeli "kuppot gemmel" and "keren hishtalmut", pensions (with redeemable value)
insurance WITH a cash surrender value (you could take out the money today)
Find the highest balance during the year. For example, if you have a checking account, you should skim your monthly statements to find the highest balance. (Some people download their statements to Excel and use a function to find the highest balance, others write down the highest balance every month or quarter, so they only have 4 or 12 numbers to compare at year end. I just skim with my eyes.)
If you moved money between accounts, you need to include the highest balance in each account, even if this means essentially reporting the same dollar twice.
Convert the balances to U.S. Dollars (USD) using the YEAR END exchange rate (regardless of when the highest balance occurred). See below.
Add up all the balances in USD. Include 100% of accounts you own jointly. If you and your spouse (if relevant) have any separate accounts (such as a pension), you should calculate the total separately for each of you.
If the total is at least $10,000 you must file an FBAR. If spouses have individual accounts, both must file an individual FBAR reporting both their individual accounts and joint accounts.
Below are some relevant year-end exchange rates for 2016.
A full list of official U.S. Treasury Reporting Rates of Exchange can be found HERE.
There is no minimum age requirement for an FBAR. If your children hold $10,000 in savings, pensions, or inheritance, they will require their own FBAR. U.S. partnerships, corporations, and trusts that meet the threshold are also required to file an FBAR.
While filing an expat or nonresident tax return requires extensive knowledge and understanding of constantly changing law, an FBAR can be filed by anyone willing to read the instructions.
The FBAR Form can be found here: http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html.
After you've followed the tips above, scroll over each entry space on the FBAR (FinCEN Report 114) and carefully read the instructions.
The FBAR is divided into five parts and has a minimum of eight pages. The BSA provides detailed instructions HERE; however, I will give you some tips to avoid the most common FBAR errors.
Pages 1 and 3 are your basic information. Only one name will appear here. Spouses may be eligible to file a "joint" FBAR if at least one spouse has NO individual accounts, only accounts jointly owned between spouses. If either spouse has accounts owned separately, the "filer" must be the spouse with any individual accounts. See example below. (As stated above, if both spouses have individual accounts, both must file a separate FBAR.)
Page 2 is where you will name the file, and sign and submit the form when complete. The other fields are only if you are filing late (For the 2016 FBAR, late would be after October 16, 2017.)
Page 3 In box 1, make sure to change the year if you are updating an FBAR from a previous year.
Part II Information on Financial Account(s) Owned Separately: This is the place to report all your accounts owned individually (e.g. personal bank account, pension accounts, Israeli "keren hishtalmut).
Report the maximum balance during the year in USD, as described above, in box 15. In box 16, you will choose the Type of Account. Pension, "kuppat gemmel" and "keren hishtalmut" accounts are generally reported as "other", Description: "Pension".
The most common mistake I see on FBARs is only including bank accounts. It is important to include all accounts in which you have a financial interest or signature authority.
Part III Information on Financial Account(s) Owned Jointly: It is very important to report joint accounts in this section. The Principal Joint Owner is the spouse of primary owner of the account BESIDES the filer.
In box 24, write the number of joint owners NOT including yourself/the filer. If you own an account jointly with a non-U.S. person, select "foreign" in box 25.
The second most common mistake I see, is a couple filing an FBAR reporting joint accounts in Part II (above). If the spouse's information is not included as a joint owner, they have not met their FBAR requirement.
Joint FBAR example: Joe and Mary are U.S. Citizens with a joint checking account and a joint savings account. Mary also has a pension account. Joe has no other accounts. Mary is the "filer," and her information will be on page 3. Joe's information will appear in the "Principal Joint Owner Information" in Part III Information on Financial Account(s) Owned Jointly. In box 24, Mary will write "1" because there is only one owner besides herself. Both Mary and Joe will sign the Form 114a Record of Authorization to Electronically File FBARs signature page and retain it for their records.
Part IV Information on Financial Account(s) Where Filer has Signature or Other Authority but No financial Interest in the Account(s): This is the place to report accounts you may have signature or check-writing authority over, but that aren't actually your accounts. Common examples include, account of a business you work for, account of a home owners' association (Israeli "vaad habayit"), or other accounts of which you may be a treasurer, such as classroom fund or club.
That last two pages won't be relevant for most individuals filing their own FBAR.
Before you file, I highly recommend you
Save the original electronic file in a safe place (or even email to yourself) so next year you can just change the date and numbers.
Print a copy of your FBAR to PDF. Your accountant will probably request a copy. The printed PDF will be easier to view and less likely to be corrupted by different PDF programs.
If you file your own FBAR, or if your accountant uses certain software that notifies the client, do not be alarmed if you get an email from cm.bsaefiling@fincen.gov:
"This is an important message from the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) regarding the status of your FBAR (FinCEN Form 114) submission...
...Your FBAR submission has been acknowledged by FinCEN and assigned the BSA Identifier..."
It is very important to retain this for your records, both as proof of submitting an FBAR and in case you ever need to amend it in the future. "Acknowledged" is the FINcen noncommittal version of received/accepted.
As of 2016, the due date for FBARs coincides with the tax return due date. While the official FBAR due date is April 15, FinCEN grants filers an automatic extension to October 15 (no specific request is required). That said, if you plan to use a professional to file your FBAR, you may get better service by getting in your information before the general tax rush. The information you need to file your FBAR is likely available online before you receive the rest of your tax documents; so, why wait?