Foreign Bank Account Reports—FBAR Traps
By Orlando Gotay
US persons are required to report annually to the US Treasury any financial interest in or signature authority over, foreign financial accounts that exceed certain value thresholds. You should treat this only as a “food for thought” primer; space does not permit an authoritative explanation. An “FBAR” is different from other forms that are filed with income tax returns. It is filed electronically with the US Treasury, not the IRS. It is due on June 30, 2016.
Are you a “US person”? Those are US citizens, green card holders, and others who meet the US “substantial presence test.” Some people may be US citizens without realizing it. Typical cases are those born in the United States who left at an early age or children of a US citizen parent born abroad. The former are virtually certain to be US citizens; children of US citizen parents born abroad need to examine their particular circumstances. Some may be citizens, and therefore “US persons.”
Some people are deemed “US persons” when they spend enough time in the US, meeting the “substantial presence test.” Typical inadvertent cases could include some Canadian snowbirds, believing they are OK because they only stay for the 180-day yearly period allowed them under US immigration law.
Financial interest: If you are the owner of record, you have a financial interest over the entire account, even if other owners are not US persons. You also have a financial interest if the account is for a corporation, trust, or other entity that you control.
Signature authority: you have signature or other authority over an account if you (by yourself or with others) can control the disposition of money, funds, or other assets held in the financial account.
Foreign financial accounts: Besides bank accounts, quite a few other things also fall in the definition of financial account, such as life insurance policies with a cash surrender value, even if no money actually is disbursed. Mutual funds, brokerage accounts, prepaid debit cards, and many similar items also come in. Excluded are stocks, bonds, and Mexican Land Trusts (Fideicomisos). But note: an “account” held by the Fideicomiso itself could be reportable.
Who files? US persons with a financial interest or signature authority over foreign financial accounts that in the aggregate exceed US$10,000 at any time during the calendar year. The maximum yearly balance for each account is added up. If that total is greater than US$10,000, all foreign financial accounts are reportable.
Be diligent. Look into this now, when there is enough time to figure if you need to file an FBAR, collect the information, and file.
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at email@example.com.