FBAR which stands for Foreign Bank and Financial Accounts Report is an annual report that provides the U.S. government with information regarding certain foreign financial accounts. This may sound a lot like FATCA, but it is a different transparency regime.
What Is FinCEN?
FBAR has been around since 1970 with responsibility for the program assigned to the U.S. Financial Crimes Enforcement Network (FinCEN) which is a bureau of the U.S. Department of the Treasury. FinCEN’s goal is to safeguard the financial system from illicit use and combat money laundering and promote national security.
Along the way, FinCEN delegated some enforcement authority regarding FBAR to the Internal Revenue Service (IRS). The IRS is responsible for investigating possible FBAR civil violations, assessing and collecting civil FBAR penalties, and issuing FBAR administrative rulings.
FBAR has become more widely known as offshore accounts have been discovered through government investigations and FATCA reporting. As financial institutions comply with FATCA, the U.S. government is in a great position to compare FATCA information against filed FBARs. If the U.S. government determines you have not filed a required FBAR, you may be facing civil and criminal penalties.
Trustees as FBAR Filers
FBAR is a complex reporting regime which cannot be covered in a short blog article. However, I have outlined below some of the key definitions for a trustee to consider.
In the context of FBAR, a U.S. person that has a financial interest in or signature authority over foreign financial accounts may be required to file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
For purposes of FBAR, a U.S. Person includes an entity, including a corporation, partnership, trust, or limited liability company created, organized, or formed under U.S. laws along with the laws of the 50 U.S. states, D.C., U.S. territories, U.S. insular possessions and Indian Tribes.
A U.S. trustee of a foreign trust generally has signature authority over and/or a financial interest in the trust’s foreign accounts and thus, may need to file an FBAR.
A foreign financial account under FBAR includes:
A securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution.
A commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).
As U.S. trustees become more involved in foreign financial account strategies, it is critical to take a more in depth look at your FBAR responsibilities. Given the significant potential criminal and civil consequences, it is best to discuss FBAR with a U.S. attorney so that you will have the benefit of the U.S. system of attorney-client privilege.
It is important to act quickly in determining whether you are required to file a report as the deadline to file with FinCEN for year end 2016 is October 16, 2017. Even if you as a trustee do not have a filing requirement, you should suggest that your clients review their financial arrangements to ensure they are FBAR compliant.
If you would like further guidance regarding FBAR or your FATCA and CRS obligations, please contact me at firstname.lastname@example.org. For additional blog posts, please go to my website: elizabethmcmorrowlaw.com.