Democrats Abroad is pleased to respond to FinCEN’s request for comments on the proposed renewal, without change, of FinCEN Form 114, the Report of Foreign Bank and Financial Accounts (“FBAR”). Our general comments as well as responses to your specific questions  are based on the experiences of our 200,000 members.

Since passage of the Currency and Foreign Transactions Reporting Act (more commonly known as the Bank Secrecy Act) in 1970, law-abiding U.S. citizens living abroad (“non-residents”) have increasingly become caught up in efforts against tax evasion and malicious actors. While we recognize that battling money laundering and terrorist financing are critical priorities, substantial adjustments to the FBAR are needed to ensure that the impact on ordinary citizens is proportional to the enforcement benefits.

The FBAR is duplicative, burdensome, and confusing. Given the availability to the Treasury Department of similar information from multiple other sources, it no longer serves a meaningful purpose. FBAR information collection from U.S. citizens who reside outside the United States is an undue burden because:

• Among ordinary middle-class citizens who reside outside the United States, awareness of the FBAR filing requirement is low. While some information about tax obligations and FATCA is available on Embassy or Consulate websites, there is nothing to raise awareness about FBAR. Filing follows a multi-step online process that is completely separate from tax-return preparation and filing, and many professional tax preparers do not routinely ask questions that would identify whether an individual has a filing requirement.
• The filing requirements and definitions are difficult to understand. For an ordinary individual reading the instructions provided with the form, it is difficult to determine whether reporting of certain account types (such as non-U.S. pensions, prepaid transit cards, or cashless payment apps) is required or not. Professional tax preparers are often hesitant to offer advice on these questions, other than to say that –  given the extraordinarily high penalties for compliance failures, even if non-willful – conservatism is prudent.
• Filing thresholds have not been revised in over 50 years and are inordinately low. Once an individual has triggered the filing requirement as a result of having aggregate financial assets greater than $10,000, then all non-U.S. financial accounts must be declared, with no de minimis exemption. For instance, even dormant accounts with zero balances must be reported.
• FBAR filings largely duplicate the information collected on IRS information returns such as Form 8938 (“Statement of Foreign Financial Assets”), Form 8621 (“Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund”), and Form 3520A (“Annual Information Return of Foreign Trust with a U.S. Owner”).
• In addition to the duplicate information required of individuals, FATCA requires foreign financial institutions to file Form 8966 disclosing balances and income associated with accounts owned by U.S. citizens.
• Finally, FBAR’s requirement for information on accounts for which the U.S. citizen does not have a beneficial interest but only signature authority is a major cause of misunderstanding and unintentional compliance failures. It also leads non-U.S. corporations to remove U.S. citizens from positions of authority over financial matters, limiting their career opportunities.

The Government Accountability Office ( GAO) has called attention to the overlap and redundancy of information being fed to the Treasury and called for consolidation and simplification to relieve the burden on Americans abroad. Our proposals for reform are intended to help FinCEN achieve proportionality, reduce paperwork burdens for both the public and FinCEN, align reporting to accounts that are large enough to pose a substantial risk relating to financial crimes, and improve FBAR’s effectiveness as a law enforcement tool. 

We advocate: 

1. Eliminating the FBAR filing requirement for non-resident U.S. citizens altogether, or excluding reporting requirements for accounts held by individuals in their country of residence.
   • Given Form 8966 reporting by foreign financial institutions, it is not clear why individual filings are required at all. 
   • At a minimum, the two individual bank-account filing requirements (FBAR and Form 8938) should be consolidated and data shared between IRS and FinCEN as necessary. This has been a recurring point of feedback from the IRS National Taxpayer Advocate for many years.
2. Adjusting FBAR reporting thresholds to $80,000 – which accounts for inflation in the 50 years since FBAR’s introduction-- to be followed thereafter by annual inflation adjustments. 
3. Customizing thresholds to take into account “geographic risk.” The motivations and justifications for holding non-U.S. accounts differ greatly between U.S. citizens residing in the country and those living abroad. Americans abroad need a local bank account in order to receive salary and make payments for local bills, rent, mortgage payments, etc. If the reporting requirement for non-resident citizens continues, then the reporting threshold for non-residents should be raised to $400,000 (consistent with IRS Form 8938) and adjusted for inflation going forward.
4. Improving the proportionality of enforcement/penalties for FBAR violations and clearly defining willful vs. non-willful recommendations. Again this has long been a point of feedback from the IRS National Taxpayer Advocate.
5. Restoring paper FBAR filings and improving e-filing options to allow popular tax-filing software to include FBAR e-filing. We have received reports from seniors living abroad who struggle to file the FBAR, given there is no paper-file option and it has to be e-filed. Many are forced to pay an accountant to file the FBAR for them, and in some cases we’ve heard of accountants charging $100 per account, imposing an enormous burden on our most vulnerable citizens.
6. Excluding accounts under a de minimis threshold, even when the reporting obligations are triggered based on aggregate foreign bank account balances. 
7. For non-resident U.S. citizens, excluding accounts where they only have signatory authority on the account but no beneficial interest. This will ensure that Americans abroad are not excluded from work or community opportunities that may require being added as a signatory.

To summarize, FBAR reporting is currently redundant, disproportionate to risk, and fails to take into account the necessity of holding foreign bank accounts when residing outside of the United States. At the same time, enforcement efforts are generally disproportionate, with FinCEN exercising little discretion and often pursuing statutory-maximum penalties even for infractions deemed non-willful. This results in highly regressive penalties that disproportionately impact middle- and working-class Americans living abroad. 

Thank you for the opportunity to comment and provide recommendations. We encourage you to read our responses to specific questions in the annex included with our letter. 

Sincerely,