Foreign bank accounts: FBAR and FATCA basics

Step 1 — Know why accounts back home matter

Once you are a U.S. resident for tax purposes, your worldwide income is subject to U.S. tax, including income from foreign bank and securities accounts, and Part III of Schedule B on your tax return asks about foreign accounts (IRS — New immigrants).

There are also two separate reports:

• The FBAR (Report of Foreign Bank and Financial Accounts, FinCEN Form 114). It goes to the Financial Crimes Enforcement Network (FinCEN), a Treasury bureau separate from the IRS (IRS — Comparison of Form 8938 and FBAR).
• Form 8938, which comes from a law called FATCA (the Foreign Account Tax Compliance Act). You attach it to your tax return (IRS — FATCA summary).

You may have to file both, and separate penalties may apply to each (IRS — FATCA for individuals). Under FATCA, financial institutions abroad may also report U.S. taxpayers’ accounts to the IRS (IRS — FATCA for individuals), so a bank abroad may ask about your citizenship when you open an account (IRS — FATCA summary). To move money home, see sending money abroad.

Step 2 — Check whether you are a “U.S. person”

The FBAR applies to “U.S. persons”: U.S. citizens (including minor children), U.S. residents, and entities, trusts and estates formed under U.S. law (FinCEN — Who is a U.S. person). To decide who is a resident, FinCEN’s instructions use the residency tests of the U.S. tax code, section 7701(b) of title 26 (FinCEN — FBAR instructions). Our tax residency guide explains how the IRS decides. Two IRS examples (IRS — Publication 5569):

• a citizen of another country who has been in the U.S. every day for the last three years is a U.S. person for the FBAR;
• so is a green card holder whom a tax treaty lets be taxed as a resident of another country: tax treaties don’t affect FBAR filing obligations.

Generally, a child files their own FBAR; if they can’t, for example because of age, a parent or guardian must file it (FinCEN — Filing for a child). If you became a resident partway through a year, ask an official contact below.

Step 3 — Add up your accounts: the $10,000 rule

You must file an FBAR if you are a U.S. person with a financial interest in, or signature authority over, foreign financial accounts whose total value was over $10,000 at any time during the calendar year (FinCEN).

• The total counts. In an IRS example, three accounts, none over $10,000, must all be reported because together they went over it (IRS — Publication 5569).
• The highest value counts. Use a reasonable approximation of each account’s greatest value during the year; periodic statements can be used if they fairly reflect it (FinCEN — Maximum account value). Convert it to dollars with the Treasury’s reporting rates of exchange for the last day of the calendar year (IRS — Publication 5569).
• Income doesn’t matter. An account counts whether or not it earned taxable income (IRS — FBAR).

Joint accounts. Each U.S. person who co-owns an account reports its entire value (IRS — Publication 5569). Spouses who own all their foreign accounts jointly can report them on one FBAR, filed on time by one spouse, if both sign FinCEN Form 114a (IRS — FBAR).

Step 4 — Know which accounts count

Generally, an account at a financial institution located outside the U.S. is a foreign financial account (IRS — FBAR). That includes bank, securities, brokerage and commodity futures or options accounts, insurance or annuity policies with a cash value, and mutual funds or similar pooled funds (FinCEN — FBAR instructions). Easy to miss:

• Retirement and savings plans abroad. IRS examples include a Canadian RRSP and TFSA and Mexican AFORE accounts (IRS — Publication 5569).
• Accounts you can sign on. Signature authority means you can control the money by instructing the bank directly. In an IRS example, a U.S. resident whose power of attorney gives her signature authority over her parents’ accounts abroad must file, even if she never used it (IRS — Publication 5569).
• Location, not the bank’s name. An account at a U.S. bank’s branch abroad is foreign; an account at a foreign bank’s branch in the U.S. isn’t (IRS — Publication 5569). U.S. accounts: see opening a bank account.

Not reported on the FBAR: real estate, cash and precious metals you hold directly, personal items such as jewelry or cars, and social security-type benefits from a foreign government (IRS — Comparison of Form 8938 and FBAR).

Step 5 — File the FBAR online, by the deadline

• Online. You file through FinCEN’s BSA E-Filing System, not with your tax return (IRS — FBAR). Individuals can file there without registering for an account (FinCEN). Paper filing requires an exemption from FinCEN, and the IRS won’t accept a printed Form 114 (IRS — FBAR).
• Deadline. April 15 of the following year, with an automatic extension to October 15 that you don’t need to request (IRS — FBAR). After a natural disaster, the government may extend the date further (IRS — FBAR).
• Someone filing for you. You authorize them on FinCEN Form 114a and keep the form instead of sending it in (IRS — FBAR). Attorneys, CPAs and enrolled agents file for clients through their own registered account (FinCEN — Individuals vs. professionals).
• Records. Keep the account details from “At a glance,” generally for five years from the due date; statements or a copy of the filed FBAR can serve (IRS — FBAR).

Step 6 — Check whether Form 8938 applies too

Form 8938 doesn’t replace the FBAR; you may need one, the other or both (IRS — Comparison of Form 8938 and FBAR). The main differences:

• Who: “specified individuals,” including U.S. citizens, people who are residents for tax purposes for any part of the year, and certain nonresidents (IRS — Do I need to file Form 8938?).
• How much: the thresholds are higher than the FBAR’s $10,000 and depend on whether you file a joint return and whether you live in the U.S. or abroad; look them up in the IRS comparison table (IRS — Comparison of Form 8938 and FBAR).
• What: it also covers some assets held outside an account, such as foreign stock; an account at a U.S. bank’s branch abroad goes on the FBAR only (IRS — Comparison of Form 8938 and FBAR).
• When: you attach it to your income tax return, and it’s due with that return, including extensions (IRS — Comparison of Form 8938 and FBAR).

If you don’t have to file an income tax return for the year, you don’t file Form 8938, whatever your foreign assets are worth (IRS — Do I need to file Form 8938?). For the return itself, see your first U.S. tax return.

Step 7 — If you missed past years

Filing an FBAR late, or not at all, is a violation and may lead to penalties (IRS — FBAR). If the IRS hasn’t contacted you about it and you aren’t under a civil or criminal investigation, the IRS says to file late FBARs as soon as possible to keep potential penalties to a minimum (IRS — FBAR).

• In the online form, you pick a reason for filing late from a list, or choose “other” and explain (FinCEN — Filing late).
• If you report the account properly on a late FBAR and the IRS finds the violation was due to reasonable cause, no penalty is imposed (IRS — Publication 5569).
• For wider problems, such as unreported foreign income, the IRS lists three options: its Criminal Investigation Voluntary Disclosure Practice, the streamlined filing compliance procedures and the delinquent international information return submission procedures (IRS — Options). The streamlined procedures require certifying that the failure wasn’t willful, and they aren’t open to anyone under IRS examination or criminal investigation (IRS — Streamlined procedures).
• The IRS encourages consulting professional tax or legal advisors to choose (IRS — Options).

FBAR penalties can be civil, criminal or both, and depend on the facts and circumstances (IRS — FBAR).