960 / Are employer contributions to a foreign retirement account on behalf of a U.S. individual exempt from U.S. reporting requirements?

U.S. individuals residing abroad may become subject to both the FBAR and FACTA reporting rules, and the corresponding penalties for noncompliance, based upon their participation in foreign retirement plans.

Generally, a U.S. individual who has an interest in any “foreign account” is required to file an FBAR (Form TD F90-22.1) if the aggregate value of foreign accounts exceeds $10,000 at any time during the calendar year.¹ The IRS has issued regulations that specifically exempt certain accounts, including plans that qualify under IRC Section 401 and IRA accounts, but these regulations do not provide a similar exemption for foreign retirement accounts.² Therefore, whether FBAR reporting will be required for a U.S. individual’s foreign retirement accounts will likely turn upon whether the individual has a “financial interest” or “signature authority” over the foreign account.

Penalties for failure to file an FBAR can be steep—for willful violations, the civil penalty can equal the greater of $100,000 or 50 percent of the account assets, and the IRS may be entitled to file criminal charges.³ For non-willful violations, the penalty can still equal up to $10,000 per violation unless the taxpayer can show that there was reasonable cause for failure to file, in which case no penalty is imposed.⁴