FinCEN Form 114

FinCEN Form 114, also known as the Report of Foreign Bank and Financial Accounts (FBAR) is an informational report that needs to be filed annually by United States persons (including citizens and residents for tax purposes) who exceed a threshold amount ($10,000) in foreign financial institutions at any time during the calendar year. The form is filed electronically with the BSA e-filing system of the Financial Crimes Enforcement Network (FinCEN) (the Financial Intelligence Unit of the United States). The requirement to file this form arises from the Bank Secrecy Act of 1970. The form replaces a previous United States Department of the Treasury form called TD-F 90-22.1, also known as FBAR.

Legal basis

The Bank Secrecy Act of 1970 (PL 91-508) created an overall framework of requirements for individuals and financial institutions around recordkeeping as well as reporting on some of their financial accounts and transactions. §241 ("Records and reports required") under Chapter 4 ("Foreign Transactions") under Title II ("Report of Currency and Foreign Transactions") of the Act provides the authority for the FBAR. Part (a) says:

The Secretary of the Treasury, having due regard for the need to avoid impeding or controlling the export or import of currency or other monetary instruments and having due regard also for the need to avoid burdening unreasonably persons who legitimately engage in transactions with foreign financial agencies, shall by regulation require any resident or citizen of the United States, or person in the United States and doing business therein, who engages in any transaction or maintains any relationship, directly or indirectly, on behalf of himself or another, with a foreign financial agency to maintain records or to file reports, or both, setting forth such of the following in-formation, in such form and in such detail, as the Secretary may require:

(1) The identities and addresses of the parties to the transaction or relationship.

(2) The legal capacities in which the parties to the transaction or relationship are acting, and the identities of the real parties in interest if one or more of the parties are not acting solely as principals.

(3) A description of the transaction or relationship including the amounts of money, credit, or other property involved.

This was modified by PL 97-258 of 1982. The modified version is in the United States Code in 31 U.S.C. § 5314. Part (a) says:

Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:

(1) The identity and address of participants in a transaction or relationship.

(2) The legal capacity in which a participant is acting.

(3) The identity of real parties in interest.

(4) A description of the transaction.

The associated regulatory guideline to require FBARs is found in the Code of Federal Regulations in 31 CFR § 1010.350 - Reports of foreign financial accounts. Part (a) says:

In general. Each United States person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country shall report such relationship to the Commissioner of Internal Revenue for each year in which such relationship exists and shall provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. § 5314 to be filed by such persons. The form prescribed under section 5314 is the Report of Foreign Bank and Financial Accounts (TD–F 90–22.1), or any successor form. See paragraphs (g)(1) and (g)(2) of this section for a special rule for persons with a financial interest in 25 or more accounts, or signature or other authority over 25 or more accounts.

History

Bank Secrecy Act of 1970 (PL 91-508)

The authority that led the government to impose the requirement to file FBARs comes from the Bank Secrecy Act of 1970 (PL 91-508), specifically §241 ("Records and reports required") under Chapter 4 ("Foreign Transactions") under Title II ("Report of Currency and Foreign Transactions"). This is now in the United States Code in 31 U.S.C. § 5314.

Amendment in 1982 (PL 97-258)

PL 97-258 modified 31 U.S.C. § 5314 slightly.

Era as TD-F 90-22.1

The FBAR form (TD-F 90-22.1) was referenced in a 1995 practical manual for state prosecutors on money laundering.

In February 2011, the Internal Revenue Service introduced its Offshore Voluntary Disclosure Initiative (OVDI) to encourage taxpayers to become compliant with their foreign financial account reporting and tax obligations; in particular, this initiative included requiring the taxpayer who were required to file FBAR forms and had not filed to "come clean" and disclose their foreign financial accounts, with a one-time penalty of 25% of the maximum amount in their foreign financial account from 2003 to 2010.

As part of the Hiring Incentives to Restore Employment Act of 2010 (PL 111-147), Section 6038D of the Internal Revenue Code was amended to pave the way for a new Form 8938 that is similar to the FBAR; whereas the FBAR only asks for a report of the amounts in foreign financial accounts, Form 8938 requires reporting on both the amounts and the income earned in those accounts (such as interest income).

Era as FinCEN Form 114

Starting with the reporting for calendar year 2013, the FBAR moved from being a paper-filed Department of Treasury form (TD-F 90-22.1) to an electronically filed Financial Crimes Enforcement Network (FinCEN) form (FinCEN Form 114) that uses the BSA e-filing system. The Department of the Treasury stopped accepting paper forms TD-F 90-22.1 starting July 1, 2013.

Dating to the era of the paper form TD-F 90-22.1 and continuing into the era of the electronic FinCEN Form 114, each section of the FBAR has a clause whereby if there are more than 25 reportable accounts in the section, the filer must simply check the box indicating this and does not need to fill in details of the accounts in that section, but must keep records that must be produced if requested by the government.

In 2016, FinCEN submitted a notice of proposed rulemaking that would remove the special rule for filers with more than 25 reportable accounts, so that all filers would have to report all their reportable accounts. The notice of proposed rulemaking also proposed amending the filing deadline from June 30 to April 15, with extensions available to October 15, matching the deadline for submitting tax returns. The proposal (specifically, the part about requiring reporting for all accounts even when more than 25) received pushback from the Investment Company Institute, that argued that this would impose a huge burden and flood FinCEN with a bunch of useless information. Similarly, a consortium of trade associations submitted a letter seeking that the special rule for filers for more than 25 accounts not be removed, with a suggested compromise of increasing the limit from 25 to 100, and also asking for an automatic deadline extension from April 15. As a result of this and other feedback, FinCEN ultimately withdrew its proposed regulation, so the special rule for more than 25 reportable accounts continues to exist. However, the filing deadline has been changed to match up with the deadline for filing taxes (April 15), with automatic extension to October 15 if the deadline is missed (making the extension automatic without the need to file for an extension was one of the suggestions from the consortium of trade associations). The fact that filers with more than 25 reportable accounts in a section didn't need to include details of any of the accounts was brought up in the arguments in Bittner v. United States to help establish that the FBAR violation penalty of $10,000 (with inflation adjustment) should be applied on a per-report rather than a per-account basis.

In 2020, in FinCEN Notice 2020-2, FinCEN clarified that cryptocurrency holdings in accounts, whether held in US financial institutions or foreign financial institutions, are not required to be reported; however, foreign financial accounts that hold cryptocurrency may need to be reported based on the other reportable assets in those accounts. The notice also said that FinCEN planned to amend the regulations to include virtual currency.

Taxpayer awareness and education efforts

A major challenge with the FBAR is that many individuals who are required to file the FBAR are unaware of the filing requirement; the threshold of $10,000 is low enough that filers without much financial sophistication may end up crossing that threshold. In particular, Americans living in other countries may be using foreign bank accounts as their primary bank accounts, in which case they may cross the $10,000 threshold easily; similarly, people from other countries currently residing in the United States may have bank accounts in their home countries from before that have over $10,000.

Form 1040 Schedule B question

At the bottom of IRS Form 1040 Schedule B, that is part of the income tax return, there are a few questions intended to highlight to the filer to look into whether to file the FBAR; this has been present since at least 2009 and possibly even earlier.

Tax prep software

Many taxpayers use tax prep software to fill their tax forms rather than directly filling in the forms. Leading tax prep softwares ask taxpayers questions about whether they own foreign financial accounts, and the balances in those accounts, and then direct the taxpayer to file a FBAR if the total maximum account value exceeds $10,000.

Filing deadline, penalties and legal challenges

Filing deadline

The filing deadline for the FBAR for a calendar year is April 15 of the next year (the same as the filing deadline for federal income taxes) with extension to October 15 granted automatically if the filing deadline is missed, with no need to request an extension. A FBAR filed after October 15 is considered a "delinquent FBAR" and may be subject to civil or criminal penalties as described below.

Penalty assessment is done by the Internal Revenue Service (IRS) (though FBAR penalties are not part of taxes)

Although the FBAR (unlike the somewhat-overlapping Form 8938) is not filed with the Internal Revenue Service (IRS) and in particular is not part of a tax return, the IRS is the agency that assesses penalties for violations of the FBAR filing requirements (such as failure to file the FBAR or errors/omissions in the FBAR). The court ruling in Mendu v. United States states that even though this is a penalty collected by the IRS, it cannot be treated as unpaid taxes, and in particular, is not subject to the special rules that apply to tax payments.

Civil penalties for non-willful violations (none in case of reasonable cause, $10,000 inflation-adjusted per report otherwise)

According to the United States Code 31 U.S.C. § 5321(a)(5)(B)(i), the maximum civil penalty for a non-willful FBAR violation is $10,000 (as last amended by statute) with inflation adjustment; however, there is a reasonable cause exception that exempts violations with a reasonable cause or where the error was not material (i.e., the amounts reported were correct). Separately, taxpayers may be able to avail of a reduced penalty amount through streamlined filing as described in a later section.

The penalty amount is specified in the table in the Code of Federal Regulations 31 CFR § 1010.821, with the inflation-adjusted amount as of 2024 being $16,117.

In Bittner v. United States (decided February 28, 2023) the United States Supreme Court ruled that this limit applied per report, rather than per account; since one report needs to be filed per year, this implies a maximum penalty of $10,000 (with inflation adjustment) for every year that the taxpayer had a non-willful FBAR violation (either a failure to file or a material error, such as missing some accounts or reporting incorrect amounts within the accounts).

Civil penalties for willful violations (maximum being the larger of $100,000 inflation-adjusted and 50% of the affected amount)

According to the United States Code 31 U.S.C. § 5321(a)(5), the maximum civil penalty for a willful FBAR violation is the greater of $100,000 and 50% of the amount in the account, adjusted for inflation. As of 2024, the inflation-adjusted amount is $161,166 as specified in the table in the Code of Federal Regulations 31 CFR § 1010.821, also referenced in IRS Publication 5569.

Taxpayer advocates have argued that the maximum penalties for willful violations are excessive, and that they should be reduced. Further, there has been criticism of the method the IRS uses to determine if a violation is willful; for instance, a failure to file FBAR could be considered willful even if the taxpayer was not aware of the filing requirement; in particular, the fact that the taxpayer included Form 1040 Schedule B in the tax return, that has a question pointing in the direction of the FBAR, may be considered sufficient to establish willfulness. The standard used for establishing willfulness for civil penalties is the preponderance of the evidence standard, rather than a more demanding "clear and convincing evidence" standard or the even more demanding "beyond a reasonable doubt" standard.

Criminal penalties

Criminal penalties may be assessed in some cases for willful FBAR violations, over and above the civil penalties. According to the Code of Federal Regulations 31 CFR § 1010.840, also referenced in IRS Publication 5569, the maximum criminal penalty is as follows:

• Knowingly and wiillfully filing false FBAR: Up to $10,000 or 5 years or both.
• Failure to file FBAR or retain required records: Up to $250,000 or 5 years or both.

The standard of evidence for criminal penalties is beyond a reasonable doubt, unlike the "preponderance of the evidence" standard necessary to assess civil penalties.

Streamlined filing

The IRS offers a set of procedures called the Streamlined Filing Compliance Procedures that allow taxpayers with non-willful failure to file FBAR to voluntarily catch up on delinquent FBARs from past years. The procedures also cover failure to file Form 8938 as well as failure to pay taxes on the income reported on Form 8938. Taxpayers need to pay all past due taxes and penalties and should not have an ongoing civil examination against them, but do not need to pay FBAR violation penalties for the years being disclosed if their streamlined filing is accepted. The filing process is a little different based on whether the taxpayer is inside or outside the United States:

• Taxpayers inside the United States need to file Form 14654 and pay a miscellaneous offshore penalty of 5% of the maximum account value over the years where the taxpayer failed to file the FBAR or Form 8938 (with a maximum lookback of 3 years for FBAR and 6 years for Form 8938) in addition to any taxes due. This amount replaces the penalty of $10,000 (with inflation adjustment) that the taxpayer would otherwise have to pay for each year with a FBAR violation.
• Taxpayers outside the United States (need to file Form 14653. There is no offshore penalty for these users.