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

Share this Article
Facebook Icon LinkedIn Icon Twitter Icon
Matthew L. Roberts

Matthew L. Roberts



Mr. Roberts is a Principal of the firm. He devotes a substantial portion of his legal practice to helping his clients successfully navigate and resolve their federal tax disputes, either administratively, or, if necessary, through litigation. As a trusted advisor he has provided legal advice and counsel to hundreds of clients, including individuals and entrepreneurs, non-profits, trusts and estates, partnerships, and corporations.

Having served nearly three years as an attorney-advisor to the Chief Judge of the United States Tax Court in Washington, D.C., Mr. Roberts leverages his unique insight into government processes to offer his clients creative, innovative, and cost-effective solutions to their tax problems. In private practice, he has successfully represented clients in all phases of a federal tax dispute, including IRS audits, appeals, litigation, and collection matters. He also has significant experience representing clients in employment tax audits, voluntary disclosures, FBAR penalties and litigation, trust fund penalties, penalty abatement and waiver requests, and criminal tax matters.

Often times, Mr. Roberts has been engaged to utilize his extensive knowledge of tax controversy matters to assist clients in their transactional matters. For example, he has provided tax advice to businesses on complex tax matters related to domestic and international transactions, formations, acquisitions, dispositions, mergers, spin-offs, liquidations, and partnership divisions.

In addition to federal tax disputes, Mr. Roberts has represented clients in matters relating to white-collar crimes, estate and probate disputes, fiduciary disputes, complex contractual and settlement disputes, business disparagement and defamation claims, and other complex civil litigation matters.

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.


Other Helpful Links:

31 U.S.C. § 5314;

31 C.F.R. § 1010.350;

IRM pt. 4.26.16;

IRS Publication 4261 (Rev. 7-2021);

IRS Publication 5569