The Bank Secrecy Act was passed by Congress in 1970, and the Foreign Accounts Tax Compliance Act was passed by Congress in 2010. These laws require US citizens who own foreign bank accounts, mutual funds, or trusts to the Financial Crimes Enforcement Network (FinCEN) which is a division of the US Department of the Treasury. These reports must be filed annually on or before June 30 of the year following the account opening.
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The law requires US citizens or residents with $10,000 or more in assets in foreign accounts at any time during the year to file. The filing must be submitted via the BSA E-Filing System. Moreover, unlike many other tax filings, there is no deadline extension for FBAR. Under the current regulations, there is a six-year statute of limitations on FBAR filings. FinCEN’s rules allow third parties including the individual’s attorney to file the FBAR on the individual’s behalf. Those who are delinquent in their filing should contact an FBAR attorney for assistance.
Exceptions to FBAR
Exceptions to the filing requirements include certain foreign financial accounts owned jointly by spouses, accounts held by members of the US military in US military banking facilities, Nostro accounts, those that are qualified IRA plans, and those individuals who have signature authority without bearing a financial interest in the account. Moreover, those who have supervisory authority over accounts but not authority to withdraw or transfer funds from the account are not required to file FBAR documentation.
Businesses and FBAR Requirements
The law requires certain individuals and businesses with indirect ownership of foreign accounts to file FBAR’s every year. These include the following:
- Corporations where a US citizen or resident holds 50% of the voting power or total value of shares.
- Partnerships where the individual is either directly or indirectly entitled to 50% of the interest, profits, or capital.
- Entities where a US citizen or resident owns either directly or indirectly 50% of the voting power, equity interest, profits, or assets of the account.
Expats and Foreign Earned Income Exclusion
Expats or those working outside the US are also required to file an FBAR even if they qualify for foreign earned income exclusions or foreign tax credits. For 2015, the threshold for foreign earned income exclusion is $100,800. US citizens or residents earning more than this amount are required to pay US federal income taxes on the amount earned above the threshold.