Are You Based in LatAm and Would like to Learn Whether You Are Required to File an FBAR Report in the U.S.? Clara Krivoy William A. Bejan long arrow

Individuals and corporate entities that qualify as U.S. persons under U.S. law are required to file Reports of Foreign Bank and Financial Accounts (FBAR) electronically on Financial Crimes Enforcement Network (FinCEN) Form 114 under the Bank Secrecy Act (BSA), to report:

1. a financial interest in or signature or other authority over at least one financial account located outside the U.S., if
2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account.

Under applicable recordkeeping provisions, those who are required to file a FBAR must keep records of accounts for generally five years from the FBAR due date, including the (i) name on each account; (ii) account number or other designation; (iii) name and address of the foreign bank or other person who keeps the account; (iv) type of account; and (v) greatest value of each account during the reporting period. Such U.S. persons should also keep copies of filed FBARs.

A U.S. person means U.S. citizens, residents, and entities, including but not limited to, corporations, partnerships or limited liability companies created or organized in the U.S. or under the laws of the U.S. and trusts or estates formed under the laws of the U.S.

Non-U.S. persons could qualify under this definition if such person is a lawful permanent resident (i.e., having a green card) or otherwise meeting the "substantial presence test" for residency in the U.S. The substantial presence test is a "counting days in the U.S. test." When a non-permanent resident resides in the U.S. for a certain number of days (at least 31 days in the calendar year and a minimum total of 183 days over 3 years (following a particular formula) and does not qualify for an exclusion or exception, then such individuals are taxed as a U.S. person and are also required to file annual FBAR reports for any foreign financial accounts.

Generally, an account at a financial institution located outside the U.S. is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a foreign financial account for FBAR purposes.

A U.S. person need not, however, report certain foreign financial accounts, including those:

• owned by a governmental entity;
• owned by an international financial institution;
• held in an individual retirement account of which the U.S. person is an owner or beneficiary;
• held in a retirement plan of which the U.S. person is a participant or beneficiary; or part of a trust of which the U.S. person is a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.

Failure to comply by submitting the required FBAR reports and/or recordkeeping violations can carry civil monetary penalties and/or criminal penalties, depending on the facts and circumstances primarily involving willful failure to file an FBAR or willfully providing false information on an FBAR. Criminal violations of FBAR rules can result in a fine potentially amounting to the greater of USD100,000 or 50% of the account balances per violation and/or up to 5 years in prison for non-willful violations that involve no other criminal activity, and up to 10 years in prison for willful violations involving efforts to evade tax laws. The Internal Revenue Service (IRS) and the Department of Justice (DOJ) have the ability to pursue cases of willful non-compliance.

If a U.S. person learns that they should have filed an FBAR for a previous year, they should electronically file the late FBAR as soon as possible. FBAR reports are annual reports, which are due on tax day, April 15, for the previous calendar year. Filers are allowed an automatic extension to October 15 and do not need to request such an extension. If a filing deadline is missed, the BSA E-Filing System allows them to enter the calendar year, including past years, that they are reporting, along with the option to explain the reason for the late filing. The IRS will generally not penalize those who properly report a foreign financial account on a late-filed FBAR, as long as the IRS finds that they have reasonable cause for the late filing.

If you would like to learn whether you or your company qualify as a U.S. person and are required to file an FBAR report in the U.S., let us know. Our team of international lawyers, many of whom are admitted to practice law in Latin American countries, can assist you.

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