By Laura Johnson, EA

If you own or have signature authority over one or more foreign financial accounts, you may be required to disclose the accounts annually to the US Treasury on FinCEN Form 114, commonly known as the FBAR. Failure to file the FBAR when required can trigger severe penalties. If you aren’t aware of this requirement, you should seek advice right away.

What makes an account foreign? 

A financial account is foreign if the account is held outside of the U.S. An account maintained by a branch of a U.S. bank that is physically outside of the U.S. is foreign. An account maintained by a foreign bank that is physically located in the U.S. is not foreign.

What is a financial account?

Bank, securities, or other financial accounts. These include, but are not limited to:

• savings, checking, deposit and time deposits accounts maintained by a person/institution engaged in the business of banking

• securities or brokerage accounts maintained with a person/institution engaged in the business of buying, selling, trading or holding stocks or other securities

• insurance policies with a cash value

• annuity policies with a cash value

• commodity futures and option accounts

• mutual funds or similar pooled funds

Off-shore gambling sites may or may not be considered financial accounts depending on the extent of additional financial services provided in addition to the facilitation of gambling.

What about cryptocurrency?

At present, virtual currency is treated as property for U.S. federal tax purposes and is therefore not considered to be an interest in a foreign financial account. However, there are proposals to amend this regulation to include cryptocurrencies as a reportable account. If you hold cryptocurrency in a foreign brokerage account, the account will be reportable, even if the cryptocurrency, if held directly, would not be.  

Signature authority vs. financial interest

The reporting requirements apply to anyone with a financial interest in or signature authority over the account.

Financial interest for this purpose means:

-the owner of record or holder of legal title, or

-the owner of record or holder of legal title is one of certain listed entities, including an agent, a nominee, attorney, or a person acting in some other capacity on behalf of the U.S. person with respect to the account, or certain entities controlled by the

Signature authority generally means the individual has the authority to control the disposition of money, funds, or other assets by communicating directly with the person/institution at which the account is maintained.

Form 8938 is not the same

There is a similar form, which different reporting thresholds, that you may be required to file with your tax return, Form 8938. That form requires disclosure of specified foreign financial assets. The definition for Form 8938 is not the same as the definition for FBAR purposes. Filing Form 8938 does not absolve you from needing to file the FBAR.

At John Schachter + Associates, we help our clients comply with all applicable foreign disclosure requirements. Let us know if we can help you today!