Americans with Foreign Bank Accounts Can Face Severe Penalties for Failure to Complete this Annual Report

Malecon in Puerto Vallarta (Source: Linda Kurtzweil)

An estimated 9 million Americans live abroad and a large percentage establish bank accounts in their new home country.

In the case of American retirees living outside the country, many even have their social security payments deposited directly into foreign accounts. Just how many people do this might surprise you.

According to statistical data provided by the U.S. Social Security Administration, 645,926 payments were made to beneficiaries outside of the United States in February alone. Of that amount, 56,790 of those payments were sent to accounts in Mexico.

What many Americans living abroad don’t realize is that they are required to complete an annual report to the U.S. Government if the value of their foreign accounts exceeds $10,000 USD at any time during the calendar year (the Bank Secrecy Act of 1970). This report is entirely separate from your income tax return.

The report is called the Report of Foreign Bank and Financial Accounts (FBAR) and is submitted annually to the Financial Crimes Enforcement Network (FinCEN).

Who has to file?

Taken directly from the filing instructions (FinCEN Form 114):

A “United States person” that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.

A “United States person” is defined as United States citizens (including minor children); United States residents; entities, including but not limited to, corporations, partnerships, or limited liability.

This includes dual nationals who also have U.S. citizenship.

How do I file?

All filing is done electronically via FinCEN’s portal: click HERE

The instructions and requirements are available in PDF form via this link: FinCEN Form 114

What is the due date to file?

The annual due date to file the FBAR is April 15th.

If you fail to make the date, don’t worry — you get an automatic extension to October 15. You don’t have to make a specific request for an extension.

What are the penalties for not filing?

For violations occurring before August 1, 2016:

Non-willful violations: subject to a civil penalty of $10,000 per violation

Willful violations: subject to a civil penalty of $100,000 or 50 percent of the balance in the account, whichever is greater, at the time of the violation

You may also be subject to criminal penalties under 31 U.S.C. section 5322(a), 31 U.S.C. section 5322(b), or 18 U.S.C. section 1001.

For violations occurring on or after August 1, 2016:

Non-willful violations: subject to a civil penalty of $12,459 per violation

Willful violations: subject to a civil penalty of $124,588 or 50 percent of the balance in the account at the time of the violation, whichever is greater. The criminal penalties still apply.

Let’s Wrap This Up

In 2010, the United States enacted a piece of legislation called the Foreign Account Tax Compliance Act (FATCA) which requires foreign financial Institutions to report on the assets held by their U.S. account holders. This law has made it easier for the U.S. government to discover foreign accounts and sanction people who fail to complete their FBAR.

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About the Author

Q-Roo Paul
Paul Kurtzweil (Q-Roo Paul) was a deputy sheriff in Florida for 25 years before retiring at the rank of lieutenant in 2015. He and his wife moved to Mexico looking for to maximize their retirement income. In 2016, they started a blog called Two Expats Mexico (qroo.us) sharing their experiences, as well as information about the logistical and legal aspects of retiring south of the border. The blog has been viewed over two million times and the articles have been republished in numerous periodicals across Mexico.

14 Comments on "Americans with Foreign Bank Accounts Can Face Severe Penalties for Failure to Complete this Annual Report"

  1. Thanks so much for the important advisory.

  2. Thanks for the information, what I am wondering is whether the purchase of a property thru an escrow account with my notario who assisted me with the purchase needs to be reported?
    Thanks for your consideration.
    Regards, Rick

  3. Holy cow Paul, Pretty scary. We will probably keep our US bank accounts as is, will use a US address where we will get mail and rent a room from a friend who will store some stuff for us. I have Edward Jones and Wells Fargo IRA accounts. Will leave them as is. Don’t see any upside to having a Mexican bank account, can get cash from visa cards at ATMs. Is this what you would advise? So glad you’re here to help us.

  4. Thanks so much for your blog! I am starting to save articles of interest in my preparations for retirement – learning so much from you!

  5. Carson Morris | June 22, 2017 at 8:14 am |

    Re the FBAR filing for fideicomiso accounts, my US CPA checked with IRS and was told the fideocomiso account need not be reported.
    Carson

  6. The first year I had a house with a fideicomiso, my US tax accountant did file some form but then the law changed and it wasn’t necessary. Now I have purchased a new house and sold the first one. I am wondering for tax reasons if the money from the sale, which is in a Mexican bank might be better off transferred to my US bank? At least some of it? Are the tax percentage implications known?

    • The taxes won’t be impacted much by moving it because you’ll have to declare the income to the U.S. government at tax time either way.

      Since the dollar is very strong at the moment, I wouldn’t recommend changing your pesos into dollars at the moment. They are worth a lot less than they were a few months ago.

  7. Thank you Paul. My brother is a deputy sheriff in Florida too! I’m moving my household goods to PV this December, and appreciate having legal financial info.

  8. Thanks for the important info AGAIN. I don’t know if you and Linda have any kids, but now you have thousands of Grown Mexican kids and we seem to need advise on EVERYTHING!
    Thanks for the support ‘Dad.”

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