Do you have a foreign bank account or any other foreign financial account that exceeds $10,000? If you have this type of account, you are required to file FinCEN Form 114. While the process sounds a bit complicated, it’s actually not that difficult.
If you have a foreign financial account, keep reading to find out about the basics of FinCEN Form 114. These include when and how to file it and the four violations you should be aware of.
What Is FinCEN Form 114?
FinCEN Form 114 is used to report foreign financial accounts. These include bank accounts, mutual funds, and brokerage accounts. This form is submitted to FinCEN, which is the Financial Crimes Enforcement Network. FinCEN is part of the United States Treasury Department and investigates domestic and foreign financial crimes.
FinCEN Form 114 is used to file a “Report of Foreign Bank and Financial Accounts”, which is also known as FBAR. Often times, you will hear that you need to file an FBAR. Filing an FBAR is the same process as submitting FinCEN Form 114, so don’t worry about filing two separate forms.
Is It Related to My Taxes?
FinCEN Form 114 is not related to personal or corporate income tax. Instead, it is an additional requirement for those who have a foreign financial account that exceeds $10,000.
FinCEN Form 114 is filed regardless if your foreign account gained or lost money. The form is not filed with your income tax forms and does not affect if you pay taxes or get a refund.
What Is a Foreign Account?
The definition of a foreign account is pretty broad. FinCEN considers any account at financial intuition located out of the United States as a foreign account.
However, there are several exceptions. You don’t need to report the following foreign financial accounts:
- Accounts owned by an international financial instruction or a governmental entity.
- Accounts held in an IRA or retirement plan that you own, participate, or benefit form.
- Trusts which you are a beneficiary and someone else, such as the trustee, files FinCEN Form 114.
- Correspondent or Nostro accounts.
- Accounts maintained in an American military banking facility.
If you have questions if you need to file, contact a tax professional like Silver Tax Group.
Who Needs to File It?
Any United States person needs to file the form. A person is defined broadly: here it means a citizen, resident, partnership, trust, estate, corporation, or limited liability company.
You must file FinCEN Form 114 if you meet these two additional requirements:
- You have a financial interest, signature authority, or other type of authority over one or more foreign financial accounts.
- The combined value of all foreign accounts is over $10,000 at any time during the calendar year.
Are There Exceptions?
There are several situations where you don’t need to file FinCEN Form 114. One situation is if all foreign accounts are reported on a consolidated form. As long as the consolidated form is filed properly, you don’t need to file a separate or additional form.
Another situation is if you jointly own all foreign accounts with your spouse. If you have authorized your spouse to file on your behalf (using FinCEN Form 114a) and your spouse files for all jointly owned accounts on time, then you don’t need to file one.
When Do You File It?
FinCEN Form 114 must be filed each year. It is due on April 15 of the following year. For example, if you had a foreign bank account with at least $10,000 in 2019, you need to file FinCEN Form 114 by April 15, 2020.
If you don’t file by April 15, you are granted an automatic extension to October 15. You don’t need to request this extension. While the IRS gives you a lot of time to file FinCEN Form 114, they will fine you if you file it late or never file one at all.
The IRS prefers you file FinCEN Form 114 late instead of never filing. As a result, they will reduce penalties for filing late than never filing at all. If you file FinCEN Form 114 late, you must explain why you are filing late
How Do You File FinCEN Form 114?
FinCEN Form 114 must be file electronically through the BSA E-Filing System.
If you prefer to file FinCEN Form 114 by paper, you can request an exemption from the IRS. To do this, you need to call the FinCEN’s regulatory hotline to make a request.
In addition to filing FinCEN Form 114, you must also keep records for each account that you report.
You can keep any type of record (or records) that have the following information:
- Name of the person on the financial account
- Account number
- Name and address of the foreign financial institution
- Type of account
- Maximum value of the account during the year
These records must be kept for five years from the due date of FinCEN Form 114. For example, if you file FinCEN Form 114 for a foreign bank account you had in 2019, you need to keep these records until April 15, 2025.
This rule doesn’t apply to an employee who files FinCEN Form 114 to report signature over an employer’s foreign account. Instead, the employer is required to keep records for these accounts.
Under federal law, there are four different types of violations. These can be done for things like not filing, filing incomplete or misleading information, or not properly keeping records.
- Foreign Financial Agency Transaction – Non-Willful Violation
- Foreign Financial Agency Transaction – Willful Violation
- Negligent Violation by Financial Institution or Non-Financial Trade or Business
- Pattern of Negligent Activity by Financial Institution or Non-Financial Trade or Business
Failing to follow the rules when filing FinCEN Form 114 or keeping records can lead to civil or criminal penalties. Penalties are based on the facts and circumstances surrounding the violation. Depending on the severity of the violation, it can lead to jail time or fines up to 50% of the amount that isn’t reported.
Need Help With Filing FinCEN Form 114? Contact Us Today!
If you need help filing FinCEN Form 114, are worried about potential penalties, or you have tax questions about your foreign financial accounts, contact us today! Silver Tax Group has experts who can help you stay in compliance or handle any issues that may come up with the IRS or FinCEN.