Unit 17: Foreign Financial Reporting

Question 1

What is the Bank Secrecy Act?

(BSA)

Answer 1

A law that imposes reporting requirements on foreign financial accounts.

Question 2

What is the purpose of the Foreign Account Tax Compliance Act?

(FATCA)

Answer 2

To mandate the reporting of foreign financial assets.

Question 3

Who is considered a ‘United States person’ for foreign financial reporting purposes?

Answer 3

• U.S. citizens
• U.S. nationals
• U.S. residents
• U.S. entities

Question 4

What form is used to report foreign financial accounts with an aggregate value over $10,000?

Answer 4

FinCEN Form 114 (FBAR), filed through the BSA E-Filing System.

Question 5

What form is used to report specified foreign financial assets when filing a federal tax return?

Answer 5

Form 8938, attached to the tax return (Form 1040 or 1041).

Question 6

What is the FBAR filing requirement threshold?

Answer 6

The aggregate value of all foreign financial accounts must exceed $10,000 at any time during the calendar year.

Question 7

Where are FBARs filed?

Answer 7

Electronically through the BSA E-Filing System directly with FinCEN.

(Financial Crimes Enforcement Network)

Question 8

What is the deadline for filing an FBAR?

Answer 8

April 15th of the year following the year in which the account holder meets the $10,000 threshold. Automatic extension to October 15th is granted.

Question 9

What does ‘signature authority’ mean in the context of FBAR?

Answer 9

The authority of an individual to control the disposition of assets held in a foreign financial account by direct communication with the bank.

Question 10

What types of accounts are included as ‘foreign financial accounts’?

Answer 10

• Foreign bank accounts
• Foreign securities accounts
• Foreign-issued insurance policies with cash value
• Foreign mutual funds
• Any other accounts maintained in a foreign financial institution

Question 11

True or False:

Whether an account produces income affects the requirement to file an FBAR.

Answer 11

False

Question 12

When can spouses avoid filing separate FBARs?

Answer 12

If they complete and sign Form 114a and neither spouse has separately owned foreign accounts.

Question 13

What happens if a child holds $10,000 in a foreign financial account?

Answer 13

The child is required to file an FBAR, even if they do not have a U.S. filing requirement.

There is no minimum age requirement for filing an FBAR.

Question 14

When must a taxpayer file an FBAR?

Answer 14

If they have a financial interest in or signature authority over foreign financial accounts exceeding $10,000 in aggregate value at any time during the calendar year.

Question 15

What is the penalty for ‘non-willful’ FBAR violations?

Answer 15

For 2025, the maximum penalty is $16,536.

A civil penalty of up to $10,000 per return, adjusted for inflation.

Question 16

What is the penalty for ‘willful’ FBAR violations?

Answer 16

The greater of $100,000, adjusted for inflation ($165,353 for 2025), or 50% of the balance in an unreported foreign account per year, for up to six years.

Question 17

What constitutes a ‘foreign financial account’ for FBAR purposes?

Answer 17

• Financial accounts physically located outside of the United States
• Foreign-issued commodity futures or stock options accounts
• Foreign-issued insurance policies with a cash value
• Foreign-issued annuity policies with a cash value
• Shares in a foreign mutual fund

Question 18

What are the consequences of failing to file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Gifts?

Answer 18

A penalty equal to 5% of the foreign gift or bequest amount for each month the failure continues, not to exceed 25%.

No penalty applies if failure to report was due to reasonable cause and not willful neglect.

Question 19

What triggers the requirement to file Form 8938, Statement of Specified Foreign Financial Assets?

Answer 19

• Unmarried / MFS (U.S.): $50,000 end of year, $75,000 anytime
• MFJ (U.S.): $100,000 end of year, $150,000 anytime
• Unmarried / MFS (abroad): $200,000 end of year, $300,000 anytime
• MFJ (abroad): $400,000 end of year, $600,000 anytime

Question 20

What is the maximum penalty for failing to file Form 8938, Statement of Specified Foreign Financial Assets?

Answer 20

$60,000

This includes a $10,000 initial penalty, plus an additional $10,000 for each 30-day period after 90 days following an IRS notice, up to $50,000.

Question 21

What is a ‘foreign gift’ for Form 3520 purposes?

Answer 21

Gifts or bequests valued at more than $100,000 received from a nonresident alien individual or foreign estate.

Question 22

What is the purpose of Form 8938?

Answer 22

To report specified foreign financial assets if the value exceeds certain thresholds.

Form 8938 is filed with the taxpayer’s income tax return and applies to specified individuals and certain domestic entities.

Question 23

What does FBAR stand for?

Answer 23

Report of Foreign Bank and Financial Accounts

FBAR is required for U.S. persons with a financial interest in or signature authority over foreign financial accounts exceeding $10,000 in aggregate value at any time during the calendar year.

Question 24

Which assets are not considered ‘specified foreign assets’ for Form 8938 reporting?

Answer 24

• Payments or rights to receive foreign social security or similar benefits
• Directly-held tangible assets like art, gold, antiques
• Foreign real estate unless held by a foreign entity
• Foreign currency if not held in a financial institution

Question 25

# True or False: A U.S. citizen must file an FBAR if they have a foreign account with a balance exceeding $10,000 at any time during the year.

Answer 25

True ## Footnote The FBAR filing requirement is based on the aggregate value of all foreign accounts.

Question 26

What is the **penalty** for failing to file **Form 5471**?

Answer 26

**$10,000** penalty for each failure to file, with **additional penalties** accruing if not filed within **90 days** of IRS notice, up to a maximum of **$50,000** per failure.

Question 27

Under which act is the **FBAR** authorized?

Answer 27

The Bank Secrecy Act of 1970 | (BSA)

Question 28

When is **Schedule B** required to be filed?

Answer 28

If the taxpayer has over **$1,500** of taxable interest or ordinary dividends, or if they have a **foreign account** or receive a **distribution** from a foreign trust.

Question 29

If a U.S. taxpayer is an **officer**, **director**, or **shareholder** in a **foreign corporation** and their ownership exceeds **10%**, what form may they be required to file?

Answer 29

**Form 5471**, Information Return of U.S. Persons With Respect to Certain Foreign Corporations

Question 30

# Fill in the blanks: Form 5471 is filed by U.S. persons with interests in certain \_\_\_\_\_\_ \_\_\_\_\_\_\_.

Answer 30

foreign corporations ## Footnote Form 5471 is an informational return for U.S. taxpayers who are officers, directors, or shareholders in foreign corporations exceeding a 10% ownership threshold.

Question 31

What is the **minimum record-keeping period** for FBAR records?

Answer 31

Five years from the FBAR due date.

Question 32

Who **files and signs** an FBAR for a child who cannot file it personally?

Answer 32

A **parent**, **guardian**, or another **legally responsible** person must file and sign the FBAR for the child.

Question 33

How are **non-willful** FBAR penalties applied?

Answer 33

Per FBAR report, not per unreported foreign account.

Question 34

When must a U.S. person file **Form 3520** for a f**oreign gift or bequest**?

Answer 34

When gifts or bequests from a nonresident alien individual or foreign estate **exceed $100,000**.

Question 35

How are **foreign account values** reported on an FBAR?

Answer 35

Use the account’s **maximum value** for the year, **convert it to U.S. dollars** using the Treasury year-end exchange rate, and **report the value** in U.S. dollars.

Question 36

What must be disclosed in **Part III of Schedule B**?

Answer 36

Whether the taxpayer had a **foreign bank or investment account** and whether the taxpayer received a distribution from, or was grantor of, a foreign trust.

Question 37

What **types of accounts** count as foreign financial accounts for Schedule B reporting?

Answer 37

Securities, brokerage, savings, checking, deposit, time deposit, commodity futures or options, insurance or annuity cash-value policies, and shares in a mutual fund or similar pooled fund.

Question 38

What **criminal penalties** can apply for willfully failing to file an FBAR?

Answer 38

A fine of up to **$250,000 and up to 5 years in prison**; if combined with certain other law violations, up to $500,000 and up to 10 years in prison.

Question 39

Which **accounts** are excluded from the definition of foreign financial accounts for FBAR purposes?

Answer 39

Accounts owned by a **governmental entity**, accounts owned by an **international financial institution**, accounts maintained on a **U.S. military banking facility**, and **correspondent** or nostro accounts.

Question 40

What is **Form 3520** used for?

Answer 40

To report transactions with **foreign trusts** and the receipt of certain **foreign gifts**.

Question 41

Does filing **Form 8938** eliminate the need to file an FBAR?

Answer 41

No. A taxpayer must still file an FBAR if the FBAR filing requirements are met.

Question 42

When must a specified domestic entity file **Form 8938**?

Answer 42

When it holds specified **foreign financial assets** above the applicable threshold and is closely held or formed/used to hold such assets.

Question 43

Which **accounts** are excluded from Form 8938 reporting?

Answer 43

U.S. mutual fund accounts and qualified U.S. retirement accounts such as IRAs and 401(k)s.

Question 44

Who may be required to file **Form 5471**?

Answer 44

U.S. individuals, domestic corporations, domestic partnerships, and certain domestic trusts or estates with qualifying interests in certain foreign corporations.