Common misconceptions about FBAR (Foreign Bank Account Report) filing

Here are some common misconceptions about FBAR (Foreign Bank Account Report) filing:

As is well known, a US citizen or green card holder

must report their worldwide bank accounts on a yearly report, if the aggregate amount in the accounts were worth over $10,000 during the year.

Misconception #1: Only accounts which had over $10,000 have to be reported, those that didn't, don't have to be.

Reality: Even if the $10,000 is spread between many accounts, the individual has a filing requirement.

Misconception #2: Accounts with little or no funds have no reporting requirement.

Reality: Once the reporting requirement has been triggered, all accounts must be reported, even if they have no funds.

Misconception #3: Pension funds, foreign brokerage accounts and other types of accounts don't have to be reported.

Reality: All these types of accounts have to be reported. This includes Israeli Pension, Kupat Gemel, Kupat Gemel L’hashkaah, and Keren Hishtalmut accounts.

Misconception #4: The foreign exchange rate to use for the FBAR form is the yearly average rate, such as the one posted on the IRS website.

Reality: FINCEN (the gov. agency which oversees the FBAR reporting program) requires using the exchange rate of the last day of the tax year – 12/31 of the given year. Also, the rate posted on the FINCEN site must be used (which is buried deep within their site, and hard to find).

Misconception #5: If you report foreign assets on an FBAR report, you’ll end up paying more taxes.

Reality: The reporting requirement does not cause any more tax to be assessed, no matter how much is in your bank account. It is simply a reporting requirement. Of course, you may owe taxes based on your regular tax return.

Misconception #6: There is something illegal about having a foreign bank account

Reality: There is nothing wrong with having a foreign account, as long as you report it.

Misconception #7: “Foreign bank account” for reporting purposes means an account in a country other than where you reside, such as in the US, if you reside abroad.

Reality: The reporting requirement is only for non-US bank accounts. This is because the US government wants to be made aware of your accounts abroad. They don’t need you to report your US accounts; they already know about them, and can audit your US bank info if their computer flags suspicious activity.

Misconception #8: Canadian bank accounts are not considered “foreign”.

Reality: They are considered foreign and must be reported, just like an account in any other country.

Misconception #9: Reporting will cause an IRS or FINCEN audit.

Reality: FBAR reporting is not know to cause increased audit rates. To the contrary, you will have less chance of an audit, if your filings are kept compliant.