How to Calculate the $10,000 FBAR Threshold for Multiple Foreign Accounts

When filing an FBAR for the first time, the question that comes to mind for most NRIs is whether the FBAR reporting threshold applies to multiple accounts or to an individual account. The simple answer is that the FBAR $10,000 threshold applies to the total value of your foreign financial accounts. Considering this, if your one account holds a small amount and you exceed the $10,000 threshold limit, you need to report that account as well. So, multiple foreign accounts are reported under FBAR.

But now the question is how to calculate the $10,000 FBAR threshold for multiple foreign accounts. This guide explains how to calculate the FBAR threshold when you hold multiple foreign financial accounts.

How Does the $10,000 FBAR Threshold Work?

The $10,000 FBAR threshold is determined under a two-step process:

• First, you need to determine the highest account balance for each foreign account at any point during the calendar year, in local currency.
• Using the Treasury Reporting Rates of Exchange for December 31, convert that balance into dollars.

If the combined value of your foreign accounts is more than $10,000 at any point during the calendar year, you need to file FinCEN Form 114. FBAR works differently from a per-account estimate. Considering this, it does not matter if a single account does not come close to $10,000; the aggregate value matters.

This is the most common mistake made by first-time FBAR filers with multiple accounts. They believe the $10,000 FBAR threshold applies to a single foreign account and, as a result, fail to file an FBAR. To get a better idea of when you need to file an FBAR, read our guide: FBAR filing requirements for NRIs and know how to proceed further when you meet the requirements.

This was all about how the $10,000 FBAR threshold works. Moving ahead, let's determine whether each foreign account needs to cross $10,000. 

Does Each Foreign Account Need to Exceed $10,000?

No, not each foreign account needs to exceed the $10,000 FBAR threshold. As mentioned earlier, this is the most common confusion among first-time FBAR filers. Considering this, not every foreign financial account needs to exceed the threshold; the combined value of all your foreign accounts should exceed it. Let's better understand this with an example:

Here, none of the foreign accounts separately exceed the FBAR threshold. However, when summed, their total of $11,500 exceeds the $10,000 threshold. Considering this, you need to report these three accounts when filing the FBAR, not only the account with the highest value.

The FBAR $10,000 threshold applies to a person's combined foreign account balance, so it does not apply on a per-account or per-bank basis. Now, moving further, let's see which accounts are included in the FBAR threshold calculation.

Which Accounts Should be Included in the FBAR Threshold Calculation?

The foreign financial accounts that should be included in the FBAR threshold calculation include:

• Individual Owned Accounts: Any foreign financial account held by a U.S. person solely in their name, such as a savings, fixed deposit, checking, or brokerage account, is counted as a foreign financial account.
• Joint Accounts: If you own a joint account with your parent, spouse, or sibling, it must also be reported on FBAR. The current FBAR guidance states that each joint owner must report the full account value rather than their share. For instance, if you co-hold an NRO or NRE account with your spouse, you need to mention the complete amount in your calculation. 
• Accounts Where You Have Signature or Authority: If you can direct or operate funds in a foreign account where you do not personally own it but manage it. For instance, you manage your parents' bank account in India. This is known as signature authority. An account may also be reportable when you have signature or other authority over it, even if you do not own the account. Signature authority generally means authority to control the disposition of assets in the account through direct communication with the financial institution. However, specific exceptions can apply, so signature authority should be reviewed based on the facts. 
• Indian NRE, NRO and FCNR bank accounts generally need to be considered when determining whether a U.S. person has an FBAR filing obligation. Other Indian financial products, including certain investment or retirement-type arrangements, should be reviewed based on their specific legal and financial structure to determine whether they constitute reportable foreign financial accounts.

These are foreign financial accounts that you need to include in the FBAR threshold calculation. Moving ahead, let's know how to calculate the FBAR threshold.

How to Calculate the FBAR Threshold: Step-by-Step Process

Here is the step-by-step process to calculate the FBAR threshold:

• Step 1: Identify all the Reportable Foreign Financial Accounts
• Note down every foreign financial account in which you have ownership, signature authority, or joint account access. Here, signature authority provides you with the ability to control and manage money in the account that is not officially yours. 
• Step 2: Determine the Maximum Value of Each Account
• Once you list all the foreign accounts you hold, determine the maximum balance they reached at any point during the calendar year. Consider using bank statements, as they provide complete information on money sent or received throughout the year. 
• Step 3: Convert the Foreign Currency Into U.S. Dollars
• After you find out the highest value of each account during the calendar year, convert them into U.S. dollars. For this, use the Treasury Reporting Rates of Exchange on December 31. 
• Step 4: Calculate Whether the Aggregate Value Exceeds $10,000
• Now, add the converted amount you get from each of your foreign financial accounts. If their sum exceeds the $10,000 threshold, you need to file an FBAR.
• Step 5: Report the Required Accounts if the Threshold is Met
• If the aggregate value is more than $10,000, on FinCEN Form 114, mention the details of all your foreign financial accounts. 

So, this is how you can calculate the FBAR threshold for your foreign financial accounts. Moving further, let's know which exchange rate you should use for FBAR.

Which Exchange Rate Should You Use for FBAR?

Use the Treasury Reporting Rate of Exchange for December 31 of that year to convert the local currency into U.S. dollars once you determine the maximum value of your foreign financial account during the year. In case there is no Treasury rate stated for your local currency, you can use another verifiable exchange rate and keep a record of that source. Given this, you cannot use the exchange rate when your account reaches its maximum value.

This was just an overview of the FBAR exchange rate. If you want to know more about FBAR exchange rate selection and examples related to it, read our blog on FBAR maximum account value and get detailed information.

Now, moving forward, let's better understand the FBAR reporting threshold with an example.

Example: Multiple Indian Accounts Crossing the $10,000 Threshold

The table below demonstrates the calculation of multiple Indian accounts crossing $10,000 threshold:

Here, the mentioned U.S. value is just to provide you with an overview of how the exchange rate works. In practice, the amount may differ from the stated value above. So, use the applicable year-end exchange rate.

This was an example of multiple Indian accounts crossing the $10,000 threshold. Moving ahead, let's consider what if the accounts cross $10,000 on a single day.

What If the Accounts Cross $10,000 for Only One Day?

Even if your foreign financial account balance crosses $10,000 only for one day, you still need to file an FBAR. The FBAR rule applies when the aggregate value exceeds the threshold at any point during the year, not whether it stays or not. For instance, suppose that in June the total combined balance of your foreign financial account was $10,500 and, at year-end (December 31), it dropped to $6,000; you still need to file an FBAR for that calendar year.

So, even if your foreign financial accounts exceed $10,000 at any point in time during a calendar year, you need to file an FBAR. Now, moving further, let's see what happens if the money is transferred between your foreign accounts.

What If Money Is Transferred Between Your Foreign Accounts?

This confuses first-time FBAR filers more than anything else. Suppose you transfer INR 5,00,000 from your NRE account to your NRO account. When calculating the threshold for FBAR filing, adding the maximum account amount separately results in the same transferred amount being counted twice.

A transfer between two foreign financial accounts does not automatically mean that the transferred funds are excluded from the FBAR calculation. For FBAR purposes, determine the maximum value of each reportable account separately and then apply the aggregate-value test. Therefore, a transfer from your NRE account to your NRO account may affect the maximum values of both accounts during the year. Do not automatically assume that the transferred amount should be counted only once or twice without applying the applicable FBAR valuation and aggregation rules.

Now, moving forward, let's review the difference between the FBAR $10,000 threshold and the Form 8938 threshold.

FBAR $10,000 Threshold vs Form 8938 Threshold

When reporting foreign financial accounts and assets, people often get confused about the difference between the FBAR $10,000 threshold and the Form 8938 threshold. Although both serve different purposes and have different requirements. To give you an idea, here is an overview of the difference between the FBAR $10,000 threshold and the Form 8938 threshold.

Further, to get a detailed idea of it, read our blog FBAR vs Form 8938. Now, moving ahead, let's know what to do if you missed FBAR filings for previous years.

What if I Missed FBAR Filings for Previous Years?

If you missed an FBAR, the appropriate corrective procedure depends on the facts. If the FBAR was simply delinquent and no special compliance procedure is required, the delinquent FBAR should generally be filed as soon as possible. However, taxpayers who also failed to report foreign income or other international information may need to consider the IRS streamlined filing compliance procedures or another appropriate disclosure procedure. The Streamlined Foreign Offshore Procedures have specific eligibility requirements, including non-willful conduct and applicable foreign-residency requirements.

To know more about this process in detail and in what circumstances it is applicable, read our blog on "Missed FBAR filings." Now, moving further, let's know the common FBAR threshold calculation mistakes that you should avoid.

Common FBAR Threshold Calculation Mistakes

Common FBAR threshold calculation mistakes that you should avoid are as follows:

• Determine the maximum value of each reportable foreign financial account separately, then aggregate those values to apply the $10,000 threshold test.
• For currency conversion, only use the Treasury reporting rates of exchange of December 31 of that year, not the exchange rate when you hold the maximum account balance.
• Not considering the small foreign financial accounts because of their small value.
• Forgetting to mention the full amount when reporting joint accounts in FBAR.
• Assuming that funds transferred between two foreign accounts are automatically counted only once, instead of calculating the maximum value of each account separately.
• Failing to review foreign accounts over which you have signature or other authority, while overlooking applicable exceptions.
• Getting confused between the FBAR threshold and Form 8938.

These are some common mistakes that you should avoid during FBAR multiple accounts reporting.

Final Thoughts

Lastly, the $10,000 FBAR reporting threshold does not apply to a single foreign financial account; it applies to the aggregate value. Considering this, to calculate the threshold, you first need to identify the maximum value of each foreign financial account you hold during the year, convert them into dollars using the correct exchange rate, and add them together. If you are a U.S. person and the aggregate maximum value of your reportable foreign financial accounts exceeds $10,000 at any time during the calendar year, you generally have an FBAR filing obligation, subject to applicable exceptions.

Further, if you are facing issues in calculating the FBAR threshold or are unsure about the FBAR obligation, connect with Savetaxs. The experts on our team will review your foreign financial accounts, help you accurately calculate the numbers, check whether you cross the threshold, and file the FBAR correctly. Reach out to us and stay compliant with the FBAR reporting process.