Americans must file a Foreign Bank and Financial Accounts (FBAR) if they have signature authority or financial interest over foreign financial accounts with an aggregate value of over $10,000 during a calendar year. FBARs are not filed with your income taxes but instead with the Department of the Treasury.
However, suppose you have an FBAR joint account with a non-U.S. citizen. How do you file, and how does it impact your filing? Will you face penalties? Or is it simply listing the taxable income on your FBAR?
Need more information? You’re in luck. Here’s how it works.
FBAR Joint Account with Non-US Citizen Spouses
One common question that people ask is whether or not a joint account with a non-US citizen needs to be reported on an FBAR. Well, it depends. For one, if the US citizen owns the joint account outright, then it needs to be reported.
Why? The reason is that the US citizen is considered to be the owner of the account for income tax returns and federal tax purposes, even if the non-US citizen contributed money to it or not. Therefore, any income earned in the account (e.g., interest, dividends) is taxable and must be reported on an FBAR.
For example, let’s say you have jointly owned accounts with your non-US spouse. The account is in your name only, and your spouse never withdraws or deposits money into it. Even though your spouse isn’t technically the owner of the account, the IRS still considers him/her to be a beneficial owner because s/he can access the funds at any time.
As a result, you’ll need to report the account on an FBAR – even if your spouse has never contributed a dime to it.
Moreover, you don’t have to file an FBAR if your non-US partner owns the account outright and you’re not a signatory on it. It’s because the IRS doesn’t consider you to be the owner of the account (even if you can access the funds in it). Don’t forget about foreign-held crypto that might be reported on an FBAR.
However, things get a bit more complicated when both you and your spouse are signatories on the account. In this case, you’ll need to file an FBAR if either one of you has control over the account – even if the other person is a non-US citizen.
For example, let’s say you and your spouse have a joint account in both of your names. Your spouse is a non-US citizen, but you’re the one who usually makes deposits and withdrawals from the account. In this case, you’ll need to file an FBAR because you have control over the account – even though your spouse is a non-US citizen. Also, there are some foreign assets that are reported on an FBAR and Form 8938.
When to File FBAR for Foreign Financial Accounts
The FBAR is due on April 15th every year. But, if you fail to meet the annual due date, you’re automatically allowed for an extension to October 15th.
However, if you still fail to file the FBAR even after the extension, the IRS may charge you a penalty, which might be further compounded by criminal charges. If you commit willful violations, the penalty can climb up to $100,000 per violation. (Learn what happens if FBAR is filed late).
For example, if you have three foreign bank accounts and fail to file the FBAR for all three of them, you may face a penalty of up to $300,000. Beyond the financial liability, the IRS could refer your case to the DOJ (Department of Justice) for criminal prosecution.
On the other hand, non-willful violations are subject to a maximum penalty of $12,459 per violation. The good news is that you won’t face any criminal charges for non-willful violations.
Even though the penalties might be harsh, it is still better to come forward and amend your return as soon as possible. The IRS has programs in place that can help reduce or
So, if you’re one of the many Americans with foreign financial institution accounts, it’s essential to know when you need to file the Report of Foreign Bank and Financial Accounts (FBAR). Failing to do so can result in severe penalties.
How to File the FBAR for Foreign Accounts
If you have foreign bank and financial accounts, you may need to file a Foreign Bank and Financial Accounts (FBAR) report. The FBAR is a form used to report financial accounts maintained by foreign banks or other foreign financial institutions.
To file the FBAR, you must complete the form and file it electronically with the Financial Crimes Enforcement Network (FinCEN). But you can paper-file it.
You must request an exemption from FinCEN’s Resource Center. If they approve, FinCEN will send you the paper form to complete. Then, you can mail the FBAR form to the IRS.
If you want someone else to file the FBAR on your behalf, you must sign and complete Form 114a, to authorize that individual. Also, there are ways to fix FBAR errors if you make a mistake.
Keeping Records
For every financial or foreign account that you report on an FBAR, you should keep the following information:
- the maximum value during the year
- address and name of the foreign bank account or foreign financial assets
- type of account (estate tax, mutual funds, etc.)
- account number
- name on the account
- filing requirements
Ideally, you must keep records for at least five years. These records will come in handy if you’re ever asked to provide proof of your FBAR filing.
The best way to keep records is by saving PDFs or screenshots of your online statements in a folder on your computer. You can also request physical copies of your statements from your bank.
Or you can create an Excel sheet where you document all the relevant information for each of your accounts. For instance, you could have one sheet for each year, with columns for the different types of accounts.
Whatever method you choose, make sure you have easy access to your filing spouse reports or records so you can pull them up quickly if needed. That way, you’ll avoid any stressful scrambling if you’re ever called on to provide proof that you filed your FBAR for that year.
