FBAR and Its Maximum Account Balance

FBAR or FinCEN Form 114 requires a declaration of all non-US financial accounts, including the highest balance for each account in a year. Also, the due dates for this form are moved from June 30 to April 15. If there are transfers of accounts during the year, this process can be a complicated process. There are frequently asked questions related to the FBAR which this article will try to address.

Are there consequences of double-counting my funds?
FBAR is purely an informational form. No tax assessments are made based on the values reported on this form. Reporting the amounts twice will not incur any consequences. Reporting a low value does not have a financial benefit. At the same time, one could be violating the law when doing such. The goal of the FBAR is to give information on the highest value in an entire year.

Eligible accounts, when not reported accurately, can result in penalties related to FBAR. Willful violations can lead to penalties which the IRS and the Treasury can impose.

The maximum amount for the penalties will be the amount greater than $100,000 or 50% of the account’s balance. When you fail to report or keep your records, each of your accounts may incur violations.

When I transfer funds between accounts, will these balances get counted twice?
Although the answer is “Yes,” this is not something to be worried about. If you don’t want to be known as having more assets than what you have, that is fine. The government will not give you extra inspection due to differences between the two amounts due to the transfer of funds.

The requirement is to report “the maximum account value of each account” included in the FBAR reporting period. There is no suggestion of combining the total worth of the balances of your accounts.

Adjusting your balance to avoid double counting is also an incorrect way of reporting. You have to report the maximum balance of each account.

What about Schedule B?
Schedule B pertains to your tax return. Filing a Schedule may help in determining your willfulness to file the necessary documents. Remember that your FBAR is sent to the Treasury although it is filed outside of your tax return.

Your responsibility as an expat taxpayer are laid out in the instructions under Schedule B. These instructions will help you report your non-US financial accounts. Your duties in filing the FBAR is also included here.

The IRS uses references such as those provided by Schedule B in proving that a taxpayer should have known his responsibility of filing the FBAR requirements. The IRS assumes that as a taxpayer with non-US bank accounts, reading the instructions regarding government forms is a significant responsibility.

Having one infraction may not lead the government assessor to evaluate your penalties. But when you fail to learn your tax duties or you attempted to conceal your accounts can lead to suspicion of a willful violation. When you check no box or the wrong box in Schedule B, that will not be sufficient.

The most severe infractions fall under the category of failure to accurately report offshore financial accounts. Remember to report the highest balance of the account in an entire year, no matter how short period such amount was made.

What is a willful violation?
Having a willful violation is a determinant for incurring penalties from the IRS. The following are some of the most related guidelines from IRS which are also used to determine the amount of penalties.

–    Willfulness is determined if the taxpayer showed voluntary and intentional violations of the tax laws.

–    If willfulness is evident, there should be enough supporting documents, and the IRS has the burden of proof.

–    If the person is knowledgeable about the reporting requirement, to prove for a willful violation, there should be a conscious decision not to file the FBAR.

Also, take note of “willful blindness,” which refers to the conscious effort not to learn about the FBAR requirements on reporting and record keeping.