This comprehensive guide explains what American expats need to know about FBAR filing. The first part explains what an FBAR is and who should file an FBAR. The second part describes how to file an FBAR in 4 easy steps, with simple examples to clarify FBAR requirements.
- What is an FBAR?
- Is FBAR a tax report?
- Who needs to file an FBAR?
- What’s FATCA?
- Is FBAR for Americans only?
- When should you file an FBAR
- What’s a foreign financial account?
- Which accounts should you disclose?
- Should you disclose your PayPal and Wise accounts in an FBAR?
- Is FBAR filing complicated?
- Step 1 – Make a list of your foreign financial accounts
- Step 2 – Find the highest amount for each account
- Step 3 – Convert to US dollars
- Step 4 – FBAR filing on the BSA e-filing system
Part I – FBAR Explained
What is an FBAR?
FBAR stands for Report of Foreign Bank and Financial Accounts. FBAR is an annual report to disclose overseas financial assets to the US Treasury Department.
Is FBAR a tax report?
No, FBAR is not a tax report and it’s not filed with the IRS.
Who needs to file an FBAR?
U.S. citizens and U.S. residents have to file an FBAR if the aggregate value of their foreign financial accounts exceeds $10,000 at any time during the calendar year reported.
There are 2 important parts in that previous sentence that I’d like to emphasize:
- “aggregate value of his foreign financial accounts exceeds $10,000″. The amount is calculated by adding the amount in each of your financial overseas account. In clear, let’s say you have 10 accounts overseas. On one given day, if each account contains €1,000, you do have to file an FBAR.
- “at any time“. You might have transfer over €10,000 from the U.S. to purchase an item. You only kept the money in your account for one day because you spent it (almost) right away. In that case, you do have to file an FBAR.
You’re considered a U.S. resident for tax purposes if you’re a green card holder or if you meet the IRS Substantial Presence Test.
FATCA (Foreign Account Tax Compliance Act) is a U.S. federal law that took effect in 2010 to fight money laundering and tax evasion. This law forces foreign financial institutions to disclose information about clients who have ties with the United States. FATCA is the reason why many Americans have troubles opening a bank account abroad.
Americans report their overseas financial assets by filing an FBAR.
Is FBAR filing for Americans only?
No, FBAR is not for Americans only. FBAR filing is a requirement for any “United States person” with more than $10,000 in a foreign institution during the year.
This means that for instance, any non-U.S. person who is a tax resident in the U.S. has an FBAR reporting obligation for his accounts back home.
When should you file an FBAR?
The deadline for FBAR filing is April 15th but you get an automatic extension until October 15th in case you miss it. When you file after April 15th, file your FBAR as being late. There is no consequence to filing late.
What’s a foreign financial account?
Broadly speaking, any account with an institution outside the U.S. is considered a foreign financial account and it should be reported on an FBAR if the €10,000 threshold is met.
Which accounts should you disclose?
You have to disclose any account outside the U.S. in which you have a financial interest or you have signature authority over. It can be that you own or jointly-own the account or you have a power of attorney over it.
If your child under 18 owns a bank account, you should report his account in your report.
Should you disclose your PayPal and Wise accounts?
Most tax experts advise the disclosure of non-U.S. based PayPal accounts and non-US$ Wise accounts for FBAR purposes. That said, I was not able to find a definite rule from the Financial Crimes Enforcement Network (FinCEN) or from the IRS. Paypal and Wise both provide some guidances on their websites but no official rule.
When in doubt, I believe it’s better to disclose unnecessary accounts because penalties for non disclosures are pretty stiff.
If you have a Wise multi-currency account (read How to use a Wise account when living abroad if you don’t), there’s no need to report your USD account on your FBAR. If you have a Wise account in euros, report the account on your FBAR.
Is FBAR filing complicated?
Filing an FBAR can be tedious when you have multiple foreign accounts but it’s free and relatively easy.
Part II – How to file an FBAR
Let’s get down to the nuts and bolts of FBAR filing. Start with getting the numbers you’ll need before firing up the FinCEN online application in Step 4.
Step 1 – Make a list of your foreign financial accounts
To file your FBAR, first establish a list of all the foreign financial accounts you have.
Step 2 – Find the highest amount for each account
For each foreign financial account, determine the highest amount of the account during the year. To make it easier, start by determining the highest amount in every account for each month.
To be able to find the highest value, you need to go over every single monthly bank statement for the past year. You cannot solely rely on the amount at the beginning or the end of the month but you need to scrutinize your bank statements.
01/01/2022: You have $5,000 in account A.
01/06/2022: You transfer $6,000 in account A from an account in the U.S.
01/08/2022: You spend $6,000 from account A to purchase a used car.
01/31/2022: You have $5,000 in account A.
Do you have to file an FBAR? Yes, you do because you had over $10,000 for 3 days in January.
01/01/2022: You have $5,000 in account A and $5,000 in account B.
01/06/2022: You transfer $6,000 in account A from an account in the U.S.
01/08/2022: You transfer $6,000 from account A to account B.
01/31/2022: You have $5,000 in account A and $11,000 in account B.
What are the highest amounts for accounts A and B in January? The highest amount for account A is $11,000 and the highest amount for account B is $11,000 as well. That’s right, the $6,000 amount is counted twice.
Step 3 – Convert to US dollars
You need to convert the highest value into US$ using the exchange rate on the last day of the calendar year reported using the Treasury Reporting Rates of Exchange.
At the bottom of the Treasury page, you can see that the Treasury reporting rate of exchange USD/EUR is 0.936 for December 31st, 2022
To convert from euros to U.S. dollars, divide the highest value by 0.936. Round up the highest value in US$ to the next whole dollar.
If your highest amount for year 2022 in account A is €11,000, convert that amount into US dollars:
€11,000 / 0.936 = $11752.1368, rounded to $11,753.
Step 4 – FBAR filing on the BSA e-filing system
Go to the BSA e-filing system. You have a choice to file FBAR directly online or you can download the file on your computer and upload the filled out form later. In order to work offline, you need to have Adobe Reader 8 or higher installed on your computer.
I always prepare my FBAR offline because I do not want to risk losing my work over a bad internet connection.
To prepare offline and submit later, click on Prepare.
To file online, click on Prepare and Submit.
Whether you work online or offline, the interface is the same.
If you chose to work offline, open the downloaded file with Adobe Reader 8 or higher.
When you file after April 15th, indicate on the first page the reason why you are filing your report late at the very top of the report.
On page 2 of the document, enter your personal information.
On page 3, enter the information of an account that you own separately (not a jointly-owned account). In the Maximum account value field (field 15), enter the highest value you previously calculated in US dollars. If you have multiple accounts owned separately, press the plus sign in the upper right corner of the page to add a new account.
The additional account will show up underneath the current one.
You might be tempted to check off the “Maximum account value unknown” box and avoid calculating the maximum amount in each of your foreign accounts. FinCEN’s recommendation is to “Check this box if the value of the account cannot be determined”. I don’t advise checking the box because there are very few instances where the maximum amount cannot be determined. Determining the highest amount of an account can be tedious for sure but it’s rarely impossible.
Pages 4, 5 and 6
On page 4, enter the financial accounts that you own jointly. Page 5 is for financial account you have signature or other authority but no financial interests. Page 6 is for filing a consolidated report but you don’t need it if you have less than 25 foreign accounts.
On pages 4 and 5, to add accounts, use the plus sign in the upper right corner of the page in the same manner you added separately-owned accounts.
Submit an FBAR
Once you’re done entering all your foreign account’s information, go back up to page 1 and click on Sign the Form.
This will automatically fill out the Signature section on page 7.
Click on the Save button to enable the Ready to File button. Click on the Ready To File button to submit the form.
You will receive a confirmation email from the BSA E-Filing System with your report BSA identifier. By law, you are required to keep a copy of your FBARs for five years.
How to amend an FBAR
If you need to modify your FBAR report after you already filed it, fill out a complete new FBAR and check the “amend” box at the top of Part I in item 1. Provide your prior report BSA Identifier on the same line (the one you received by email) or enter 00000000000000 if you do not have a prior report id.
FBAR filing for a previous year
If you need to file an FBAR for one of the previous years, you can e-file specifying the calendar year reported at the top of the report. The IRS calls this process “resolving delinquent FBARs” and in their own words:
“The IRS will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.”
FBAR filing is pretty simple but many American expats are unaware of their reporting obligations. As an expat, you might be interested in learning How to use a Wise Account when Living Abroad.