We work with many clients to develop smart, flexible tax strategies; such strategies are essential to align their tax, investment and wealth preservation plans. When clients have assets in multiple countries, this task can become more complicated—not just in terms of long-term thinking, but also in ensuring they are compliant with all those countries’ tax codes.

A common tax obstacle faced by many of our U.S. taxpaying clients is the “FBAR,” or the Report of Foreign Bank and Financial Accounts. Under the Bank Secrecy Act (“BSA”) of 1970, any U.S. taxpayer must file an FBAR in any year that they have assets in financial accounts outside the U.S. that exceed $10,000 in aggregate. Failure to file an FBAR can lead to embarrassing public disputes with the Internal Revenue Service, substantial fines and even imprisonment.

In this brief, we provide some background on the FBAR, and cover some of the pitfalls and risks that we can help clients avoid as they navigate this sometimes-tricky topic.

Draconian penalties for intentional and unintentional failures to report

Clients often rely on tax advisors to help them understand and navigate the byzantine U.S. tax code, and to comply with all applicable filing requirements. Sound, comprehensive tax advice is critically important because tax penalties are generally imposed for filing errors or failures regardless of whether those errors were intentional or accidental. The FBAR is one of many obscure and seemingly benign tax forms that can trip up otherwise compliant taxpayers. We work closely with our clients and their outside professional advisors to identify when FBAR filings are required and to help facilitate compliance.

The maximum penalty for unintentional failure to file a timely FBAR is $12,921 for each tax year the FBAR goes unfiled! As such, even the most ethical taxpayers may feel anxiety about these reports, since they may end up being punished despite the best intentions.

A taxpayer who willfully fails to file an FBAR may face civil penalties as high as $129,210, or up to half of the assets in any account found to be in violation; in addition, criminal penalties can range as high as fines of $250,000 and five years in prison. Some recent, high-profiles examples include:

  1. In 2013, the billionaire creator of Beanie Babies pled guilty to tax evasion and faced FBAR fines of roughly $53 million.
  2. In 2014, an 87-year-old, retired specialty-glass importer faced more than $2 million in penalties for failing to disclose a $7 million Swiss account which dated back to the 1960s.
  3. In 2022, a professor with dual U.S. and Canadian citizenship who maintained accounts overseas while teaching in France, Canada, and Switzerland incurred approximately $300,000 in penalties for failing to disclose the accounts in FBARs.
A rule intended to prevent and deter financial crimes

So why is filing an FBAR considered so important by the IRS? The requirement comes from the Bank Secrecy Act, which was enacted to target those that deliberately evade federal taxes through secret or undisclosed accounts. The BSA was amended by the USA Patriot Act of 2001 and the Anti-Money Laundering Act of 2020, to target more aggressively the funding of terrorism via money laundering and other financial crimes.

FBAR compliance was enforced by the Treasury Department’s Financial Crimes Enforcement Network bureau, or FinCEN until 2003, when enforcement was delegated to the IRS.

Straightforward filing process

The FBAR’s formal title is “FinCEN Report 114, Report of Foreign Bank and Financial Accounts,” or “Form TD F 90-22.1.” The FBAR must be filed electronically through the BSA’s E-Filing System, and is due by April 15th, with an automatic six-month extension to October 15th.

Information reported on the FBAR includes the filer’s taxpayer identification number, institution where the foreign account is maintained, account number(s), and maximum balance maintained in each foreign account during the applicable calendar year. There are separate sections for accounts held separately, accounts held jointly, accounts with only signature or other authority and no financial interest. U.S. persons who own an interest greater than 50% in one or more U.S. entities with foreign accounts may file a single FBAR on behalf of themselves and the U.S. entities they own.

Identifying potential pitfalls

It is not always easy to tell if an FBAR needs to be filed, sometimes due to confusing terminology, other times because the circumstances triggering the FBAR might be overlooked. A tax advisor can be helpful in these situations.

Although the FBAR rules may appear straightforward, they are quite layered and complex. Various elements of the rule can often lead to an FBAR filing requirement when a taxpayer may not realize one is needed:

Defining “U.S. person”.
Includes a U.S. citizen, a U.S. corporation, non-U.S. citizens who are resident aliens for tax purposes and certain H-1B visa holders.

Determining which foreign account(s) will trigger a need to file.
Below are a few examples that might require an FBAR filing; in any situation, individuals should consult their tax advisors to determine FBAR requirements:

  • A U.S. citizen teaching abroad for one year who opens a local bank account that has $10,000 at some point during the year would trigger FBAR filing requirements.
  • A child volunteering with Peace Corps who opens a joint bank account with a parent could trigger FBAR filing requirement for both child and parent.
  • A U.S. vacationer who received an uncollected $25,000 windfall at a Monaco casino would incur an FBAR filing requirement.
  • A U.S. person who maintains a safe deposit box at a Bermudan bank with $50,000 of travelers’ checks must file an FBAR.
  • FBARs are not required for the following: government-owned accounts; accounts of international financial institutions in which the U.S. government is a member; accounts in overseas U.S. military banking facilities; certain bank-to-bank settlements; accounts owned by certain retirement plans.

Financial interest.

  • A limited partner with greater than 50% ownership and non-voting shares of a passthrough entity that holds a foreign account with $15,000 is subject to the rule.
  • A law firm with a cash deposit of $100,000 in an Ireland trust account for two weeks before a real estate closing for a U.S. purchaser must file an FBAR.
  • A U.S.-based grantor of an irrevocable trust, with a trustee who opens a foreign checking account to help an overseas beneficiary make monthly bill payments, must file an FBAR.

Signatory authority.

  • A retired trust officer whose name remains on valid signature cards for a trust company’s securities account at a Swiss bank – despite being retired – is subject to FBAR reporting requirements.
  • An executor who resigns without knowing that the estate holds title to a non-interest-bearing account in Italy that supported the decedent’s estranged mistress and her children must file an FBAR.
How the future of finance affects FBAR requirements

There are new kinds of financial accounts that so far have not required compliance with FBAR. For example, cryptocurrency account balances held on decentralized exchanges could potentially trigger a filing requirement; however, at this point, the Treasury Department and IRS have not provided any guidance. An aggregate balance of $10,000 in a non-U.S. market could ensnare the unwary investor.

Brown Advisory can help

We strive to learn from every client and apply lessons learned. Our familiarity with our clients’ accounts and business interests allows us to work with the clients’ tax advisors to identify FBAR filing requirements and provide guidance on compliance.


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