The Foreign Bank Account Report – commonly referred to as the “FBAR” – is something that most US tax filers are not familiar with until they move abroad. Let’s take a quick dive into this report so that it makes more sense to those of us who now have to file it every year.
I am a lover of all things historical – how do we make sense of the present unless we understand the past? – so let’s look first at the origins of the FBAR. The FBAR came out of the 1970 Bank Secrecy Act,1 an effort by Congress to rein in money laundering. The law requires US financial institutions to submit reports about certain transactions, such as large cash transactions or suspicious transfers. This is all well and good, right? I think everyone agrees that money laundering is a bad thing.
The FBAR provision in the law widens its overall scope to include mandatory reporting by individuals, and this is where we expats get sucked in. Congress realized, of course, that money laundering is very often a cross-border activity. Thus, the law requires that individuals with a financial interest (exact amounts will be explained later) in foreign financial accounts outside the US file an annual report with the Financial Crimes Enforcement Center, also known as FinCEN.2 This is one of the ways the US attempts to track those rich tax evaders (well, and terrorists) who hide their money offshore. Again, all well and good.
So, those are the FBAR fundamentals. An expat without much knowledge about this law would likely now come to the conclusion that none of this applies to them, because they are not a rich tax evader and their bank accounts aren’t overstuffed with cash. Well, strike that thought! The law states that if the combined value in your foreign accounts is $10,000 or more, you must file this report. Yes, only $10,000.3
But why, oh why, are all of us average-income, regular-people-type-of expats caught in this net of tax crime enforcement? 99% of us are not tax criminals. We are just living our regular lives outside of the US, and like people living inside of the US, we have bank accounts with money in them for … wait for this … buying things we need in our daily lives (!!).
The unfortunate reality is that the Treasury Department has not done a great job of differentiating between average people living abroad and the tax evaders and money launderers and terrorists they should (rightly!) be tracking and pursuing.
I, for one, am not happy about this, and I feel they should fix it. Like, yesterday. That said, I still file my FBAR every year and encourage everyone I know to do so, because IRS penalties are not something I want to deal with. Ever.
So, here’s the bottom line: it sucks to have to file a FBAR every year. However, if you don’t want to do it, I can do it for you. Just get in touch. 🙂
- 1. Find a brief summary of this law on Wikipedia: https://en.wikipedia.org/wiki/Bank_Secrecy_Act ↩︎
- 2. See the FinCEN website here: https://www.fincen.gov ↩︎
- 3. This amount is from 1970, and has not been adjusted for inflation. To read more about the FBAR, check out the IRS website here: https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar ↩︎