What is FBAR? Foreign Bank Account Report Compliance for Digital Nomads and America Expats

In the interconnected global economy, international corporate entities and individuals often maintain financial accounts in various countries. To ensure compliance with U.S. regulations, it’s crucial for corporations and individuals alike to be aware of the Foreign Bank Account Report (FBAR) requirements. As an international corporate law firm, we strive to provide comprehensive guidance on navigating these complex regulations. This article delves into the essentials of FBAR compliance to help safeguard your business against potential penalties.

Under the Bank Secrecy Act (BSA), U.S. persons are mandated to submit an annual report to the U.S. Treasury detailing their foreign financial accounts. This report, known as the FBAR (FinCEN Form 114), is filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, and not with the Internal Revenue Service (IRS). The FBAR aims to help the government trace potentially illicit funds and identify unreported income that may be subject to U.S. taxation.

The FBAR, formally known as FinCEN Form 114, is a crucial compliance filing used by the U.S. Department of the Treasury to prevent tax evasion and money laundering. It mandates U.S. persons, including citizens, residents, and entities, to report any foreign financial accounts exceeding an aggregate value of $10,000 at any point during the calendar year.

Any U.S. person with a financial interest in or signature authority over foreign accounts exceeding the $10,000 threshold must file an FBAR.

This includes:

1. Individuals: U.S. citizens and residents, including self-proclaimed digital nomads and American expats. 
2. Entities: Corporations, partnerships, and limited liability companies (LLCs) established or organized in the U.S.
3. Trusts and Estates: U.S. trusts and estates with foreign accounts.

Foreign financial accounts encompass a wide array of assets held outside the United States, including:

• Bank accounts (savings, checking, and deposit accounts)
• Securities accounts
• Commodity futures or options accounts
• Mutual funds or similar pooled funds
• Certain insurance policies with a cash value

FBAR filings are due annually by April 15, with an automatic extension to October 15 available. The form must be submitted electronically through the Financial Crimes Enforcement Network’s (FinCEN) BSA E-Filing System.

• Identify All Foreign Accounts: Maintain detailed records of all foreign financial accounts. Ensure accurate and comprehensive documentation.
• Determine Filing Obligations: Assess if the aggregate value of your foreign accounts exceeds $10,000 at any time during the year.
• Timely Filing: Ensure FBAR filings are submitted by the deadline to avoid penalties.
• Accurate Reporting: Provide precise information about account numbers, financial institutions, and maximum account values during the reporting period.

Non-compliance with FBAR requirements can result in severe penalties:

• Civil Penalties: Up to $12,921 per violation for non-willful violations, increasing to the greater of $129,210 or 50% of the account balance for willful violations.
• Criminal Penalties: Willful violations may lead to fines up to $500,000 and imprisonment for up to ten years.

To mitigate risks associated with FBAR non-compliance, consider the following best practices:

• Regular Audits: Conduct regular audits of foreign financial accounts to ensure all are reported accurately.
• Staff Training: Train employees responsible for financial reporting on FBAR requirements and deadlines.
• Professional Guidance: Consult with legal and financial professionals specializing in international compliance to navigate the complexities of FBAR filing.

Compliance with FBAR regulations is not merely a legal obligation but a critical aspect of corporate governance for international businesses. By understanding the requirements and implementing robust compliance strategies, your corporation can avoid hefty penalties and maintain its reputation. Our law firm is dedicated to providing the expertise and support needed to ensure your business meets all international financial reporting obligations. Contact us today to learn more about how we can assist you in achieving full compliance with FBAR requirements.

Della Torre Law, PLLC