IRS Provides Updated Guidance for FBAR Reporting in 2021

The Internal Revenue Service (IRS) recently issued updated guidance on the federal reporting requirements for U.S. taxpayers that have bank accounts and other financial accounts overseas. While the IRS' updated guidance does not change anything with respect to taxpayers’ obligations, it clearly outlines the Report of Foreign Bank and Financial Accounts (FBAR) requirement and describes what taxpayers should do if they need to fix prior FBAR filing mistakes. Boston international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

When is an FBAR Required?

The federal Bank Secrecy Act (BSA) requires U.S. taxpayers to disclose foreign bank accounts and other foreign financial accounts to the federal government. This is done by submitting an FBAR to the Financial Crimes Enforcement Network (FinCEN). Taxpayers that fail to timely file FBARs with FinCEN can face IRS scrutiny, and violating the BSA can potentially lead to civil or criminal penalties.

Not all foreign accounts are subject to the BSA’s reporting requirements. For example, as outlined by the IRS, an FBAR is only required if a U.S. taxpayer has:

• “Financial interest in, signature authority or other authority over one or more accounts, such as bank accounts, brokerage accounts and mutual funds, in a foreign country, and
• “The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.”

Notably, an account is considered “foreign” not only if it is held in a foreign country but also if it is held on Indian lands or in a U.S. territory or possession (i.e., the District of Columbia, Puerto Rico, Guam, or the U.S. Virgin Islands).

Who is Required to File?

Any taxpayer who owns an interest in a qualifying foreign account must file an FBAR to maintain compliance with the BSA. This includes children (a child’s parent or guardian must file on the child’s behalf if the child cannot file independently), but it excludes spouses who complete and sign IRS Form 114a. Retirement savers who have foreign financial accounts held in their IRAs do not need to file, and the FBAR instructions list a number of other exceptions as well.

What if You Fail to Timely File an Accurate FBAR?

While the due date for FBARs is April 15, all U.S. taxpayers receive an automatic extension to October 15. In order to amend past FBARs, taxpayers must file new FBARs marked as “amended.” Crucially, while the IRS advises that taxpayers who have missed the FBAR filing deadline should “electronically file the late FBAR as soon as possible,” this isn’t necessarily the best option in all scenarios. In many cases, taxpayers will need to make voluntary disclosures instead in order to mitigate any potential penalties.

Contact Boston International Tax Attorney Kevin E. Thorn

Do you have questions or concerns about FBAR compliance? If so, you should consult with an attorney promptly. To request an appointment with Boston international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 617-692-2989, email ket@thornlawgroup.com or contact us confidentially online today.