How to file FBARs

If you qualify as a U.S. person, you may be required to file FBARs, also known as Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts, with the U.S. Department of Treasury.

Note that U.S. persons are defined as:

• U.S. citizens;
• U.S. residents; and
• entities including, but not limited to, corporations, partnerships, limited liability companies (LLCs), trusts, or estates formed, organized or created under U.S. law.

Generally, if you have financial interests or signing authority over one or more foreign financial accounts (FFAs) with an aggregate value over US$10,000 during a calendar year, you must electronically file FBAR. The form is due on or before June 30 each year for the previous calendar year.

So, if you’re a U.S. citizen who holds a Canadian-located bank account with US$10,500 from which you can withdraw funds by signing cheques, you must file an FBAR. And while that’s a common FBAR filing situation, others may not be so obvious.

4 surprising situations

1. Beneficial ownership of FFAs

U.S. persons who are beneficial owners of FFAs, rather than account holders themselves, may be required to file FBARs. Beneficial owners are considered to have financial interests in FFAs, even though they can’t directly authorize FFIs themselves.

Pursuant to Title 31 of the U.S. Code of Federal Regulations (CFR) Section 1010.350 (e)(2)(i), “A United States person has a financial interest in each bank, securities or other financial account in a foreign country for which the owner of record or holder of legal title is a person acting as an agent, nominee, attorney or in some other capacity on behalf of the United States person with respect to the account.”

Some U.S. persons may not be aware of the rule’s broad applications. For instance, if you ask your Canadian-resident friend to hold more than US$10,000 in that friend’s FFA, you must file an FBAR even though the friend may not legally be your agent. The friend, however, is acting “in some other capacity” on behalf of the U.S. person.

2. Personal filing obligations of majority business owners

U.S.-created corporations, partnerships and LLCs are all U.S. persons with FBAR filing obligations. However, U.S. persons with majority ownership interests in such entities have to file personal FBARs reporting the entities’ FFAs as well, since the U.S. persons’ ownership interests are deemed to be financial interests.

In fact, you can own a majority financial interest in a business entity if you directly or indirectly own:

• more than 50% of the voting power or total value of a corporation’s shares;
• more than a 50% interest in the profits or capital of a partnership; or
• more than 50% of the voting power, total value of the equity interest or assets, or interest in profits of any other business entity other than some trusts.

If you have such financial interests, you may be surprised by what you’re reporting in these circumstances: the obligation is to report the corporation, partnership or other business entity’s FFA on the U.S. person’s own FBAR. Whether the U.S.-created entity has to file an FBAR itself is irrelevant; the majority owner must still report the FFA.

3. Minor children

U.S. minors who have signing authority or financial interests in FFAs that exceed US$10,000 must also file FBARs.

Recent instructions for FinCEN Form 114 state, “Generally, a child is responsible for filing his or her own FBAR report. If a child cannot file his or her own FBAR for any reason, such as age, the child’s parent, guardian, or other legally responsible person must file it for the child.”

So if you’re the child’s parent, you must electronically sign the FBAR on behalf of your minor children in item 45 of Form 114, Filer Title, by entering “Parent/Guardian filing for child.”

4. PoAs for foreign property

U.S. persons who hold power of attorneys (PoAs) over Canadian property also have to file FBARs. This rule is based on the fact that holding a PoA over an FFA provides the agent with signing authority over the FFA.

For example, if you’re a Canadian citizen who is a U.S. resident and you have a PoA for your aging parents’ joint bank account in Canada, you must file an FBAR reporting that account regardless of whether you have actually exercised authority over that account. Possessing signing authority via the PoA is enough to require an FBAR.

Consequences for failing to file

U.S. persons who fail to file FBARs face civil penalties that range in amount depending on whether the violations were non-willful or willful. Such penalties can cost you thousands of dollars. Willful violations may also result in criminal penalties. So, it’s imperative that you remain compliant with unexpected FBAR obligations.