FBARs – Your new Best Friend Forever? You decide!

With seven million Americans living overseas plus a multi-million foreign born population living in America – there are huge volumes of FBARs due to be filed with the US Treasury each year.

We are honoured to announce that we are one of the first third-party firms in the UK authorised by the Bank Secrecy Act E-Filing agency (BSA) of the United States Treasury to file FBARs electronically on behalf of clients.

Electronic FBAR filing has become compulsory from TODAY in most circumstances – including for “delinquent” and corrected FBARs.  Having spoken directly with the BSA E-Filing agency we are pleased to share this special update.

Are paper FBARs dead?

Electronic filing is mandatory. In 99% of cases there is simply no choice. Paper forms will simply not be processed. Nonetheless and on a case by case basis paper filing might still be acceptable (for example from someone without access to a computer); but only if a call is made to the regulatory helpline on (703) 905-3975 or (800) 949-2732.

Will penalties be automatically generated?

The BSA E-Filing agency claim they cannot discuss policies about penalties. US laws certainly permit penalties to be charged whenever an FBAR is filed late. However under US law, if there is reasonable cause for late filing such penalties should not be charged – or if assessed should be cancelled. Given that the electronic filing system does not even ask why an FBAR is being filed late; there is now a considerable risk that “the computer” might spit out penalties automatically even where there is reasonable cause. Only time will tell what policy the BSA will actually decide to implement here; but with non-wilful penalties set at up to $10,000 per account per year the overall message is to think very carefully before filing any FBAR that is late.

Can a tax adviser help by filing an FBAR electronically?

Yes, tax advisers such as ourselves can certainly file electronically on behalf of clients – if clients agree in writing and if the firm is authorised to file these forms. However every single detail that goes on an FBAR will have to be manually typed directly into the BSA E-Filing website. For many tax advisers this will double their effort because exactly the same information will need to be typed to prepare US income tax returns.

This somewhat crazy BSA rule is quite different from IRS rules which still allow income tax returns to be filed on paper from outside of the United States while the IRS remains unable to accept non-US preparers to electronically file US income tax returns.

How do I explain I have reasonable cause?

Well you can’t! According to the BSA E-Filing agency late filers cannot currently explain why they are filing late as they have no system in place. Advice that we and others are receiving is that late filers should keep their own records in their own files as to why FBARs are being filed late. This is certainly different from previous practice and it will be interesting to see how this new policy develops over time.

But, wait, remind me what the heck an FBAR is?

US persons who hold the equivalent of $10,000 in non-US bank and financial accounts are required to file each year with the US Treasury returns commonly known as “FBARs” (or Reports of Foreign Bank and Financial Accounts), listing all non-US bank and financial accounts. These are separate to and in addition to income tax returns.

An FBAR is not a tax return. It is a return required by the US Treasury from all US persons who on any day in any calendar year hold greater than the equivalent in aggregate of $10,000 in non-US bank and financial accounts. This form requires listing the name of each financial institution, its address, all account numbers and the values of all non-US bank and financial accounts where the filer either had beneficial ownership or signature authority.  FBARs are required to be filed electronically using the BSA (Bank Secrecy Act) section of the US Treasury website by 30 June each year. No extensions are available.

And that Form 8938 too?

Additionally, those US persons living outside the United States who have non-US bank and financial assets (including pension plans) that are valued at greater than $200,000 (on 31 December) or $300,000 (on any day during the year), must separately file a Form 8938 (Return of Foreign Financial Assets) which must be included within the annual income tax return filed with the IRS.