Do You Need To File a FBAR?

If you don’t know what that is, we break it down for you
BY: ORLANDO GOTAY

Before I get started, I want to provide a little disclaimer: You should treat this column only as a food for thought primer; my limited space here doesn’t permit a full explanation.

So, now that we have that out of the way, here we go. Americans are required to annually report any financial interests or signature authority over foreign financial accounts exceeding certain value thresholds they have to the US Treasury. This requires a Foreign Bank Account Report (FBAR), which is different from other forms that are filed with income tax returns. It is not a tax return; it is filed electronically with the Treasury, not the IRS. With the automatic extension, it is due on October 16, 2017.

How do you know if you need to file a FBAR? Consider these things:

Are you a “US person”? American citizens, green card holders and others who meet the U.S. “substantial presence test” are considered US persons.

Financial interest: If you are the owner of record, you have a financial interest over the entire account, even if other owners are not US persons. You also have a financial interest if the account is for a corporation, trust or other entity that you control. Spouses have a duty to report their accounts; some joint filing for spouses is allowed.

Signature authority: A person has signature or other authority over an account if you (by yourself or with others) can control the disposition of money, funds or other assets held in the financial account. That means much more than a signature card. If you can do anything to move money or assets, you have “signature authority.”

Foreign financial accounts: Besides bank accounts, quite a few other things also fall in the definition of financial account; life insurance policies with a cash surrender value, even if no money actually is disbursed; mutual funds, brokerage accounts, prepaid debit cards, and many similar items also come in. Excluded are stocks and bonds held outright, cash in a bank deposit box, and Mexican Land Trusts (fideicomisos). But take note: an ‘account’ held by a fideicomiso could be reportable. People have asked me: Yes, your Mexican HOA bank account is a “foreign financial account.” Foreign meaning outside the United States; even overseas branches of “regular” US banks.

Who files? U.S. persons with a financial interest or signature authority over foreign financial accounts that in the aggregate exceed $10,000 USD at any time during the calendar year. The maximum balance for each account is figured out. If the total of those account balances is greater than $10,000, all foreign financial accounts are reportable, even ones with a zero balance. If your account is not in US dollars you must use the official end of year exchange rate published by Treasury; for 2016, $1 equals 20.6520 pesos.

Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the U.S. Tax Court and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of U.S. expats in Mexico. He can be reached at tax@orlandogotay.com or Facebook: GotayTaxLawyer.