Form 114: Report of Foreign Bank and Financial Accounts (FBAR)

Do You Have Unfiled FBARS?

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Overview

The law requires each "United States person" who has a financial interest in or signature authority over any foreign financial account to file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. The form required is FinCEN Form 114, formerly TD F 90-22.1.

You can find instructions for how to file your FBAR/FinCEN Form 114 (FBAR) here. You can electronically file Form 114 for free here.

Who Is a United States Person for the FBAR?

A United States person (defined in IRC Sec. 7701(a)(30)) includes any citizen or permanent resident of the United States (regardless of where they live) and any foreign national who has passed the substantial presence test (see Your Residency Status).

It also includes a nonresident alien making the first year election under Section 7701(b)(4) of the Internal Revenue Code (IRC), but does not include a nonresident alien electing to file a joint return under IRC Section 6013(g) or (h) (as clarified in the Preamble to 31 CFR 1010.350, published Feb. 24, 2011, and in Section 4.16.16.3.1.2 of the Internal Revenue Manual).

FinCEN Form 114 for LLCs

A United States person also includes a corporation, partnership, limited liability company (LLC), trust, and estate, created or organized in the United States or under the laws of the United States. (IRC Section 7701(a)(30).) This is the same definition for all the forms described in this guide, except when exceptions are noted.

That means a single-member LLC, even if owned by a nonresident alien, is considered a United States person for determining FBAR filing requirements, even though it is a disregarded entity for income tax purposes. According to the instructions:

The federal tax treatment of an entity does not determine whether the entity has an FBAR filing requirement. For example, an entity that is disregarded for purposes of Title 26 of the United States Code must file an FBAR, if otherwise required to do so. Similarly, a trust for which the trust income, deductions, or credits are taken into account by another person for purposes of Title 26 of the United States Code must file an FBAR, if otherwise required to do so.

Therefore, if you are a nonresident who owns a single-member LLC, and the LLC either has a financial interest in foreign accounts, or signature authority over them, your LLC might have an FBAR filing requirement.

What Is a Financial Interest for the FBAR?

According to the FBAR filing instructions:

A United States person has a financial interest in a foreign financial account for which:

The United States person is the owner of record or holder of legal title, whether the account is maintained for their benefit or another’s; or
The owner of record or holder of legal title is one of the following:
- An agent, nominee, attorney, or other person acting on behalf of the United States person concerning the account
- A corporation in which a United States person owns directly or indirectly:
  - More than 50 percent of the total value of shares, or
  - More than 50 percent of the voting power of all shares
- A partnership in which the United States person owns directly or indirectly:
  - More than 50 percent of the partnership's profits (e.g., distributive share considering any special allocation), or
  - More than 50 percent of the partnership capital
- A trust of which the United States person:
  - Is the grantor, and
  - Has an ownership interest for federal tax purposes. See 26 U.S.C. §§ 671-679 to determine if a grantor has such interest
- A trust in which the United States person has more than 50 percent present beneficial interest in assets or income for the year
- Any other entity in which a United States person owns directly or indirectly more than 50 percent of voting power, equity value, assets, or profits

Definition of "Indirectly"

When using the term "indirectly" to describe ownership of corporate stock, a partnership interest, and any other entity, it opens up a whole new world of attribution rules. Different codes apply to different entities, and it gets messy trying to figure out your deemed (indirect) ownership when people related to you or entities you own have direct ownership. We won't delve into that here. Just know that it's difficult to avoid the reporting requirements by passing the legal title of foreign accounts to someone else.

What Is Signature Authority?

Signature authority is generally the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account. There are exceptions, though. According to the instructions:

Individuals who have signature authority over, but no financial interest in, a foreign financial account are not required to report the account in the following situations:

Financial Institutions & Service Providers

An officer or employee of a bank that is examined by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, or the National Credit Union Administration is not required to report signature authority over a foreign financial account owned or maintained by the bank
An officer or employee of a financial institution that is registered with and examined by the Securities and Exchange Commission or Commodity Futures Trading Commission is not required to report signature authority over a foreign financial account owned or maintained by the financial institution
An officer or employee of an Authorized Service Provider is not required to report signature authority over a foreign financial account that is owned or maintained by an investment company that is registered with the Securities and Exchange Commission. Authorized Service Provider is an entity that is registered with and examined by the Securities and Exchange Commission and provides services to an investment company registered under the Investment Company Act of 1940

Publicly Traded Companies & Subsidiaries

An officer or employee of an entity that has a class of equity securities listed (or American depository receipts listed) on any United States national securities exchange is not required to report signature authority over a foreign financial account of such entity
An officer or employee of a United States subsidiary is not required to report signature authority over a foreign financial account of the subsidiary if its United States parent has a class of equity securities listed on any United States national securities exchange and the subsidiary is included in a consolidated FBAR report of the United States parent
An officer or employee of an entity that has a class of equity securities registered (or American depository receipts in respect of equity securities registered) under section 12(g) of the Securities Exchange Act is not required to report signature authority over a foreign financial account of such entity

What Must Be Reported on the FBAR?

The term "financial account" includes the following:

Bank accounts such as savings accounts, checking accounts, and time deposits
Securities accounts such as brokerage accounts and securities derivatives or other financial instruments accounts
Commodity futures or other options accounts
Insurance policies with a cash value (such as a whole life insurance policy)
Mutual funds or similar pooled funds
Most retirement accounts, and
Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution

Some examples of foreign financial accounts that are reportable on the FBAR / FinCEN Form 114 are:

A Canadian Registered Retirement Savings Plan (RRSP)
Canadian Tax-Free Savings Account (TFSA)
Mexican individual retirement accounts (Fondos para el Retiro)
Mexican Administradoras de Fondos para el Retiro (AFORE)

The information you will need to report for each account (even those valued at less than $10,000) for each year is:

Name and address of financial institution
Type of account (bank, securities, other)
Account number, and
Highest balance during the year

When To File the FBAR

The Surface Transportation and Veterans Health Care Choice Improvement Act mandates the filing date for FBARs as April 15th. The 2015 Act also mandated a maximum six-month extension of the filing deadline. FinCEN will grant filers failing to meet the Form 114 annual due date of April 15th an automatic extension. This extends the FBAR due date to October 15th each year. Conveniently, it is not required to file a form to extend the due date. Thus, the effective due date of FinCEN Form 114 is October 15.

What Happens If You Don't File FinCEN Form 114?

For over three decades after enactment, the US Treasury largely ignored enforcement of this requirement. Because most taxpayers did not even know about the filing obligation, they routinely failed to comply. In 2004, Congress gave the IRS a powerful enforcement tool by dramatically increasing penalties for willful failure to file the FBAR form each year.

Under 31 U.S.C. section 5321(a)(5), the law sets a $10,000 civil penalty per violation for non-willful failures to report, adjusted for inflation. If taxpayers show reasonable cause and properly report the account balance, they avoid the penalty. For willful violations, the law imposes the greater of $100,000 (inflation-adjusted) or 50% of the account balance at the time of the violation.

For penalties assessed in 2022, the inflation-adjusted penalty for non-willful violations rose to $14,489, and the penalty for willful violations rose to $144,886 (31 CFR section 1010.821). Prosecutors may also pursue criminal penalties for willful violations under 31 U.S.C. section 5322 or 18 U.S.C. section 1001.

*A Report to Congress In Accordance With Sec. 361(b) of the USA Patriot Act, Submitted by the Secretary of the Treasury, April 26, 2002.

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