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.
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