IRS Issues Guidance on FBAR: LB&I FBAR Practice Unit

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

The Bank Secrecy Act (“BSA”) requires United States persons (“USPs”) to file FinCEN Forms 114, Report of Foreign Bank and Financial Accounts (“FBARs”), for each calendar year in which the aggregate amount(s) in certain foreign account or accounts exceed $10,000.  Although the purpose of the FBAR reporting requirements is to help the government identify and trace funds used for illegal purposes or help identify unreported income maintained or generated overseas, even lawful USPs often run afoul of the technical and complex FBAR reporting requirements.

On October 18, 2022, IRS LB&I issued its Practice Unit on FBARs.  The Practice Unit provides a great summary of the FBAR reporting rules—moreover, it provides important insights into how the IRS (and its employees) interpret these rules.  To help taxpayers and tax professionals alike, this article provides a summary of the FBAR Practice Unit.

The FBAR Filing Deadline

Historically, the FBAR reporting deadline was June 30 of the year after the reporting year.  This continued until the 2016 reporting year, which now requires USPs to file FBARs on or before April 15 of the year after the reporting year.  Notably, however, FinCEN has granted automatic extensions of time to file FBARs in prior years, extending the FBAR reporting deadline from April 15 to October 15 without need for any filed extension requests.

Example:  For his 2019 calendar year, USP has an FBAR reporting obligation.  USP must file an FBAR on or before October 15, 2020.  USP is not required to file a written request for an extension of time to file.

How Long Does the IRS Have to Impose Civil Penalty Assessments for Late-Filed FBARs?

Under the BSA, the IRS can assess civil penalties if a USP has an FBAR reporting obligation and fails to timely file a complete and accurate FBAR.  Unlike other federal income tax penalties, the IRS is limited to making an assessment of FBAR penalties up to six (6) years from the date of the FBAR reporting deadline.

Example:  For his 2019 calendar year, USP has an FBAR reporting obligation.  USP fails to file an FBAR by October 15, 2020.  The IRS has until October 15, 2026, to assess an FBAR civil penalty against USP.  This same six-year assessment period applies whether USP files an FBAR or not.

Where do I File an FBAR?

The FBAR must generally be electronically filed through FinCEN’s BSA E-Filing System at  Significantly, the FBAR is not filed with the USPs individual income tax return (e.g., Form 1040).

Who Must File an FBAR?

USPs have an FBAR filing obligation only if the USP meets all of the following requirements:  (1) the USP has a financial interest in or signature or other authority over a financial account; (2) the financial account is located in a foreign country; and (3) the aggregate amount(s) in the account(s) valued in U.S. dollars must exceed $10,000 at any one time during the calendar year.

Who or What is a USP? 

USPs include citizens and residents of the United States.  USPs also include entities—such as corporations, partnerships, or trusts—created, organized, or formed under the laws of the United States, any state, the District of Columbia, any territory or possession of the United States, or an Indian tribe.

Example:  A is not a United States citizen.  However, A obtained his United States green card in 2020.  A is a USP for purposes of Title 31.

What is a Financial Account? 

Financial accounts include bank accounts and securities accounts.  In addition, financial account is interpreted more broadly to include:  (1) commodity futures or options accounts; (2) insurance or annuity policies with a cash value; and (3) mutual funds or similarly-pooled funds.

Financial accounts do not include:  (1) stocks and bonds held directly by a USP; (2) real estate or certain accounts holding solely real estate (e.g., a Mexican fideicomiso); (3) precious metals/stones or other jewels held directly by a USP; and (4) in most instances, a safety deposit box.

What Qualifies as a Financial Account in a Foreign Country?

Financial accounts are held in a foreign country if the account is outside the geographical areas of the United States.  For these purposes, the United States includes:  (1) the states of the United States and the District of Columbia; (2) the territories of the United States (e.g., Commonwealth of Northern Mariana Islands, American Samoa, Guam, Commonwealth of Puerto Rico, and U.S. Virgin Islands); and (3) the Indian lands.  Significantly, the location of the account and not the nationality of the financial institution governs whether the financial accounts is located in a foreign country.

ExampleUSP established a bank account with J.P. Morgan Private Bank in Germany.  Although J.P. Morgan is a domestic bank, USP has a financial account located in a foreign country.

ExampleUSP established a securities account with Deutsche Bank in Texas where USP resides.  Although Deutsche Bank AG is headquartered in Germany, USP does not have a financial account located in a foreign country.

What is a Financial Interest, Signature or Other Authority?

USPs can have either direct or indirect financial interests that are reportable on FBARs.  For example, if a USP is an owner of record or has legal title of the foreign account, the USP has a direct and reportable interest, provided the other FBAR reporting requirements are met.  In addition to a direct interest, a USP can have a reportable indirect interest in the foreign account at issue.

ExampleCorporation A is the owner of a foreign account in Switzerland.  USP owns 75% of Corporation A (both vote and value).  USP has a reportable indirect interest in the foreign account, provided the other FBAR reporting requirements are met.  Similar rules apply to partnerships and trusts.

USPs who have signature or “other authority” over foreign accounts also may have reportable foreign accounts.  Generally, the IRS deems a USP to have signature or other authority if that USP (either alone or in conjunction with another) can control the disposition of money, funds, or other assets held in a financial account by direction communication to the person with whom the financial account is maintained.

Computation of the $10,000 Threshold

If all of the above requirements are met and the foreign accounts exceed $10,000 USD, the USP has an FBAR reporting requirement.  For purposes of computing the $10,000 USD threshold:

  1. First, the USP must value each account separately by analyzing the amount of locally denominated currency and non-monetary assets that appear on a quarterly or more frequent account statement. If no account statements are issued, the maximum account asset is the largest amount of currency and non-monetary assets in the account at any time during the year.
  2. Second, the USP must convert the maximum value into U.S. dollars by using the official exchange rate in effect at the end of the year at issue for converting the foreign currency into U.S. dollars. Generally, the official Treasury Reporting Rates of Exchange for the last day of the calendar year in issue should be used and may be found at the Bureau of the Fiscal Service website at
  3. Third, after separately valuing the accounts and converting into U.S. dollars, the USP must aggregate all reportable accounts, including: (i) solely-owned accounts; (ii) jointly-owned accounts; (iii) direct financial interest accounts; (iii) indirect financial interest accounts; and (iv) signature authority accounts.
  4. Note that special reporting rules apply if the USP has a financial interest in or signature authority in 25 or more foreign financial accounts.


Although the LB&I Practice Unit provides an excellent overview of the relevant BSA statutes and regulations, it fails to provide USPs who have missed critical FBAR filing deadlines guidance on regaining BSA compliance.  For some options, see our firm’s prior articles on:  (1) the Voluntary Disclosure Program; and (2) the IRS Streamlined Filing Compliance Procedures.


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FBAR Penalty Defense Attorneys

FBAR penalty defense requires a proactive representation and a deep knowledge of the nuances of FBAR compliance and its defenses. Freeman Law represents clients with offshore tax compliance disputes involving FBAR penalties and international information return penalties. Failing to file an FBAR can give rise to significant penalties, including a non-willful penalty and willful FBAR penalty. The risks of tax and reporting non-compliance have never been more real and the threat of international penalties, particularly FBAR penalties, has never been more clear. Schedule a consultation or call (214) 984-3000 to discuss your FBAR penalty concerns or questions.