Reporting Foreign Financial Accounts

19 May 2014 •

The Financial Crimes Enforcement Network, or FinCEN Form 114, formerly known as the FBAR, is used to report financial interest or signature authority over foreign financial accounts with an aggregate balance in excess of $10,000 at any point during the tax year.

Form 114 now has a mandatory electronic filing requirement as of 1 July 2013 which can be fulfilled via the BSA efiling system.  The Form can be completed independently, or by authorizing a preparer be means of Form 114a.

Form 114 must be submitted via the BSA efiling system no later than 30 June following the tax year end.  No extensions are available for the submission of this form.

Additional Requirements for Foreign Financial Assets

In addition to FinCEN Form 114 reporting, the IRS also requires reporting of foreign financial assets on Form 8938 as part of the Federal tax return.   This report extends to include financial accounts, securities, interest in a foreign entity such as a corporation, partnership, or trust and any financial instrument with an issuer or counterparty that is not a US person.

US citizens residing abroad must report these assets on Form 8938 if the market values of the foreign financial assets are greater than $200,000 on the last day of the tax year, or $300,000 at any point during the year.   These thresholds relate to individuals with a single filing status, and should be doubled for married filing joint returns.

Conclusion

It is important to note filing Form 8938 does not alleviate you of your FinCEN Form 114 requirement.
Each form carries a hefty fine of $10,000 for non or incomplete reporting, with a potential for these penalties to be higher.

It is always advisable to keep on top of your US tax affairs to avoid penalties and administrative problems, as the IRS is becoming increasingly stringent on reporting especially in respect of foreign financial accounts and assets.  For any help on this or any other American tax related issues please do not hesitate to contact Warrener Stewart for further clarification.