What is FBAR and Reporting to US Authorities?

What is FBAR and Why Is It Important?

FBAR (Report of Foreign Bank and Financial Accounts) is a mandatory reporting requirement to US tax authorities — specifically to FinCEN (Financial Crimes Enforcement Network) — designed to report on foreign bank accounts and financial accounts abroad. If you are a US resident, hold a US passport, or meet certain criteria for US tax nexus, you may be required to file this report annually.

In Israel, a growing number of business owners and small to medium-sized company proprietors find themselves obligated to file this report — whether due to foreign investments, foreign bank accounts, or international business relationships. Failure to report can result in substantial penalties, making a clear understanding of these obligations critical.

Ben Or Cook Accountants provides professional guidance to business owners and companies in Petah Tikva and Ramat Gan navigating this international reporting requirement, including preparation of comprehensive tax reports and coordination with Israeli tax authorities.

Who Must File FBAR?

If the aggregate value of your foreign bank accounts and financial accounts exceeds a certain minimum threshold on any day during the tax year, you must file a report with FinCEN. This includes:

• US residents (by place of residence or citizenship)
• US passport holders
• Individuals with significant US tax nexus
• Those with foreign account values exceeding the minimum threshold

Israeli companies with foreign accounts or ownership interests in foreign companies may also be required to file, depending on the ownership structure and investment relationship.

The Difference Between FBAR and Other Tax Reports

FBAR is not itself a tax report, but rather an information disclosure on foreign assets. However, you must also file regular tax reports (such as Form 1040 in the US) that report income and entitlements abroad. In Israel, you must report such income to the Israeli Tax Authority and comply with local tax obligations. Coordination between the two reports is essential to avoid double taxation and incorrect filings.

FBAR Reporting Requirements and Criteria

Threshold Amounts and Monitoring

U.S. authorities establish a minimum threshold amount for reporting. Generally, if the total value of your foreign accounts exceeds this amount on any day during the tax year, you must file a report. This amount may vary in different years, so it is important to keep yourself updated on current requirements.

Important to note: The report is based on the maximum value of the accounts during the year, not on the average or final balance. This means that even if you have only one day in the year when your account exceeds the threshold, you are still required to file a report.

Types of Accounts and Assets That Require Reporting

FBAR includes reporting on:

• Foreign bank accounts — checking accounts, savings accounts, current accounts, and similar
• Foreign investment accounts — securities accounts, funds, options
• Foreign pension funds — under certain conditions
• Foreign insurance accounts — with monetary value
• Foreign provident funds and training funds

In contrast, bank accounts in Israel, real estate assets in Israel, and personal property in Israel are not included in the FBAR. Reporting of these is done through other channels to the Israeli tax authorities.

Filing Deadlines and Technical Requirements

FBAR reporting is submitted electronically through the FinCEN system in the U.S. The regular filing deadline is generally in the first months of the new tax year. However, under certain circumstances, an extension of the deadline may be requested. Late or missing reports may result in substantial financial penalties, even if there was no willful intent.

Ben Or Cook Accounting Services assists businesses and companies in Petach Tikva and Ramat Gan in preparing these reports, including collecting accurate data from banks and financial institutions abroad, and ensuring full compliance with authority requirements.

Common Scenarios and Practical Examples

Self-Employed Individual in Israel with a U.S. Bank Account

Ran is a licensed self-employed individual in the technology sector in Petach Tikva. In recent years, he began providing services to American companies and received an offer to open a U.S. bank account to receive payments. This account contains an average of $50,000 in certain months. Under these circumstances, Ran must file an FBAR because the total value of his foreign accounts exceeds the threshold. Additionally, he must report this income to the Israeli Tax Authority and file a return with the IRS in the United States. Ben Or Kook assisted Ran in preparing both reports simultaneously, ensuring that no double taxation occurred.

Investment Fund Manager Abroad

Dina is the owner of a small business consulting company in Ramat Gan. A few years ago, she invested part of her profits in an investment fund in the United States. This fund generates dividends and capital gains annually. Dina must report this fund on her FBAR, and also include her income in a U.S. tax return (if she meets other criteria). Additionally, in Israel, the fund's profits constitute taxable income and must be reported to the Israeli Tax Authority. Ben Or Kook assisted Dina with international tax planning to avoid double taxation and prevent duplicate reporting.

U.S. Resident Who Immigrated to Israel

Abraham was a U.S. resident for 15 years and immigrated to Israel last year, obtaining an Israeli ID card. Abraham still has assets in the United States — a mortgaged house and a bank account. Although he is now an Israeli resident, because he holds a U.S. passport, he must still file tax returns with the IRS in the United States (at least for a certain period). Ben Or Kook assisted Abraham in managing the tax transition, reporting his U.S. assets, and understanding his obligations in Israel as a new resident.

Israeli Company with a Foreign Branch

An export company in Petach Tikva opened a branch in Singapore. The branch has its own bank account and investment accounts. The parent company in Israel must report these accounts, even if they are in the branch's name. Ben Or Kook assisted the company in preparing financial statements that integrate data from the branch, coordinating with international reporting requirements, and ensuring compliance with Israeli tax obligations.

Risks and Penalties for Non-Reporting

Failure to file an FBAR or inaccurate reporting can result in severe penalties. In the United States, the fine can be substantial — whether due to negligence or willful misconduct. In Israel, failure to report foreign income or foreign assets can result in penalties from the Israeli Tax Authority, including interest charges on unpaid taxes.

Furthermore, if you are facing an examination or audit by tax authorities, inaccurate or incomplete reporting can aggravate the situation and lead to an in-depth investigation. Therefore, it is crucial to ensure accurate and timely reporting with the assistance of an accountant experienced in international tax reporting.

Settlement of Previously Unfiled Reports

If you failed to file an FBAR in the past and are now aware of your obligation, there are settlement options available. In the United States, relief programs exist (such as Streamlined Filing Compliance Procedures) that allow you to file returns for previous years with reduced penalties. In Israel, if you voluntarily approach the Tax Authority with unreported filing, you can typically avoid severe penalties. Ben Or Kook can assist in this settlement process, including preparing prior-year reports and coordinating with the authorities.