Understanding Foreign Bank and Financial Account Report (FBAR)

With the governments acting tough, the tax evaders look at different means to evade taxes. One such way is to maintain foreign bank account/accounts. Such a move helps people to hide income generated or maintained abroad. However, today the federal government has made it mandatory for every U.S. citizen or resident and every entity (organized under U.S. law) to file foreign bank and financial accounts report with the U.S. Treasury annually.

Any United States person who has a financial interest in or signature authority, or other authority over any financial account in a foreign country must file FBAR. IN FBAR, there are certain terms that need to be understood clearly in order to avoid confusion. Hence, given below is a glossary of such terms to understand FBAR clearly.

FBAR

Foreign Bank and Financial Account Report (in short FBAR) is a form that IRS requires taxpayers to file to comply with the requirements of reporting Foreign Bank and Financial Accounts to tax authorities in the United States.

United States Person

A United States person is a citizen or resident of the United States, a domestic partnership, a domestic corporation or a domestic estate or trust.

Foreign country

A “foreign country” includes all geographical areas outside the United States, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the territories and possessions of the United States (including Guam, American Samoa, and the United States Virgin Islands).

Financial Account

A “financial account” includes any bank, securities, securities derivatives, or other financial instruments accounts. The term includes any savings, demand, checking, deposit, or any other account maintained with a financial institution. Financial account also generally includes any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds). Individual bonds, notes, or stock certificates held by the filer are not a financial account nor is an unsecured loan to a foreign trade or business that is not a financial institution.

Foreign Financial Account

Any account that includes checking, savings, demand, brokerage, securities accounts, or other accounts maintained with a financial institution or other institution or person performing the services of a financial institution that is physically located outside of the United States is a foreign financial account.

Like these, several other terms are there that need to be properly comprehended to understand the importance and requirements of FBAR.