What Is FinCEN Form 114?

FinCEN Form 114, also known as the "Report of Foreign Bank and Financial Accounts" (FBAR), is a U.S. government form that must be filed by U.S. citizens, residents, and entities that have financial interest in or authority over foreign financial accounts exceeding certain thresholds. The form is filed with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. It is not filed with the IRS, though the IRS oversees compliance.

FinCEN Form 114 is an essential tool in helping the U.S. government combat tax evasion and money laundering by tracking individuals’ and entities' foreign financial activities. Failing to file the FBAR when required can result in significant penalties, including both civil and criminal consequences.

Who Needs to File FinCEN Form 114?

Any U.S. person or entity—including individuals, trusts, estates, and domestic corporations—that has financial interest in, or signature authority over, one or more foreign financial accounts must file FinCEN Form 114 if the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.

A "U.S. person" is broadly defined and includes U.S. citizens, residents, and entities such as partnerships, corporations, limited liability companies, trusts, and estates. Even if a foreign account generates no taxable income, the FBAR must still be filed if the total value crosses the threshold.

What Counts as a Foreign Financial Account?

A foreign financial account is broadly defined. It includes:

• Bank accounts (e.g., savings, checking, and time deposits) held outside of the U.S.
• Investment accounts with foreign institutions.
• Mutual funds or similar pooled funds in foreign institutions.
• Brokerage accounts held at foreign financial institutions.
• Certain insurance policies or annuities with a cash value.

It’s important to note that merely holding an account with a foreign institution triggers the FBAR filing requirement, regardless of the account's purpose or the income it generates.

What is the $10,000 Threshold?

The $10,000 threshold is based on the aggregate maximum value of all foreign accounts held by the filer at any point during the calendar year. This means that even if an individual has multiple accounts, as long as the total value across all accounts exceeds $10,000, they must file the FBAR.

For example, if an individual has three foreign accounts, and their highest balances in the year are $6,000, $4,500, and $3,000, respectively, the total value is $13,500. Because this exceeds $10,000, the individual must file FinCEN Form 114.

Filing Deadlines and Procedures

FinCEN Form 114 must be filed electronically through the BSA (Bank Secrecy Act) E-Filing System. The filing deadline aligns with the individual tax return due date of April 15, though an automatic extension until October 15 is available without having to request it.

Unlike income tax returns, FinCEN Form 114 is not filed with the IRS but is submitted directly to FinCEN. However, the IRS is responsible for enforcing the FBAR filing requirements and can impose penalties for non-compliance.

Penalties for Failing to File

Failure to file FinCEN Form 114 when required can result in steep penalties. The penalties fall into two categories:

• Civil Penalties: For non-willful violations, the penalty can be up to $10,000 per violation. If the violation is considered willful, the penalty can be the greater of $100,000 or 50% of the balance in the account at the time of the violation.
• Criminal Penalties: Willful violations can also lead to criminal charges, with potential penalties including fines and imprisonment.

The consequences are severe, making it essential for individuals and entities with foreign accounts to carefully assess whether they need to file.

Relationship Between FinCEN Form 114 and IRS Form 8938

Many people confuse FinCEN Form 114 with IRS Form 8938, which is filed under the Foreign Account Tax Compliance Act (FATCA). While both forms are used to report foreign assets, there are significant differences:

• Thresholds: FinCEN Form 114 must be filed if the aggregate value of foreign accounts exceeds $10,000, regardless of tax filing status. IRS Form 8938, however, has higher thresholds that vary based on filing status and residency.
• Where to File: FinCEN Form 114 is filed with FinCEN, while Form 8938 is part of the individual’s tax return and submitted to the IRS.
• Scope: Form 8938 includes a broader range of foreign assets beyond financial accounts, such as foreign stock and securities not held in a financial account, foreign partnership interests, and foreign hedge funds.

It’s important to note that some individuals and entities may be required to file both forms, depending on their foreign holdings.

The Bottom Line

FinCEN Form 114, or the FBAR, is a crucial reporting requirement for U.S. persons and entities with foreign financial accounts exceeding $10,000 in value. It plays a key role in combating tax evasion and money laundering by tracking foreign accounts. Compliance is mandatory, and failure to file can lead to severe civil and criminal penalties. Understanding the filing requirements, knowing the differences between FinCEN Form 114 and other reporting forms like IRS Form 8938, and ensuring timely filing are essential for avoiding costly penalties.