FBAR and FATCA

FBAR and FATCA

These IRS initiatives have become the twin 800 pound gorillas of US expat tax and US resident issues. Read carefully if you are an expat (or thinking of becoming one), if you are a US work or resident visa holder – or if – for any other reason, you are an owner of – or even a signer on – a non-US bank or brokerage account.

FOREIGN BANK ACCOUNT REPORTING – FBAR

IF YOU HAVE a non-US bank or brokerage account or accounts – or, are thinking of doing so – we urge you to read the information here and at irs.gov and become aware of the draconian fines and penalties for falling afoul of these two new US Treasury and IRS compliance hot buttons.

FBAR: ARE YOU REQUIRED TO FILE?

IF you are a US Person and have a financial interest in or signature or other authority over any foreign financial accounts as defined in the above section – AND IF the aggregate value of these accounts exceeds $10,000 at any time during the calendar year – YOU HAVE A LEGAL REQUIREMENT TO FILE THIS FORM.

WHAT TYPES OF ACCOUNTS MUST BE REPORTED?

Details on various forms of foreign financial accounts – and there are many – are on the IRS web page, or through our quick reference tables at the bottom of the page.

DUE DATE

Due date is April 15th for the prior tax year. That is, April 15, 2019 for tax year 2018. As of 2018, all taxpayers are granted an automatic six month extension to file. No action is required to receive the extension.

FBAR rules have become a major irritant, to be sure, but a fact of expat life these days, indeed the governments expanded compliance net extends to many more “US persons” than just expats. Make sure you know your status and your possibility of being required to file such reports.

FOREIGN ACCOUNT TAX COMPLIANCE ACT – FATCA

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The FATCA Form 8938 filing requirement is in addition to the FBAR filing requirement.

FATCA was enacted in 2010 by Congress to target non-compliance by U.S. taxpayers using foreign accounts. FATCA requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Quick Guide to FATCA and FBAR Requirements, as of Jan 2016

 FATCAFBAR
Who Must File?Specified individuals, which include U.S citizens, resident aliens, and certain non-resident aliens that have an interest in specified
foreign financial assets and meet the reporting threshold
U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold
Does the United States
include U.S. territories?
NoYes, resident aliens of U.S territories and U.S. territory entities are subject to FBAR reporting
Reporting Threshold
(Total Value of Assets)
$50,000 on the last day of the tax year or $75,000 at any time during
the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)
$10,000 at any time during the calendar year
When do you have an interest in an account or
asset?
If any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or asset are or would be required to be reported, included, or otherwise reflected on your income tax returnFinancial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.

Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.
What is Reported?Maximum value of specified foreign financial assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assetsMaximum value of financial accounts maintained by a financial institution physically located in a foreign country
How are maximum account or asset values determined and reported?Fair market value in U.S. dollars in accord with the Form 8938 instructions for each account and asset reported Convert to U.S. dollars using the end of the taxable year exchange rate and report in U.S. dollars.Use periodic account statements to determine the maximum value in the currency of the account.
Convert to U.S. dollars using the end of the calendar year exchange rate and report in U.S. dollars.
When is it Due?By due date for income tax return, including any extensionReceived by June 30 (no extensions of time granted)
Where to File?File with income tax return, pursuant to the instructions for filing the returnFile electronically through FinCENs BSA E-Filing System. The FBAR is not filed with a federal tax return.
PenaltiesUp to $10,000 for failure to disclose and an additional $10,000 for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60,000; criminal penalties may also applyIf non-willful, up to $10,000; if willful, up to the greater of $100,000 or 50 percent of account balances; criminal penalties may also apply

Quick Guide to Types of Foreign Assets and Whether They are Reportable

 FATCAFBAR
Financial (deposit and custodial) accounts held at foreign financial institutionsYesYes
Financial account held at a foreign branch of a U.S. financial institutionNoYes
Financial account held at a U.S. branch of a foreign financial institutionNoNo
Foreign financial account for which you have signature authorityNo, unless you otherwise
have an interest in the account as described above
Yes, subject to exceptions
Foreign stock or securities held in a
financial account at a foreign financial institution
The account itself is subject to reporting, but the contents of the account do not have to
be separately reported
The account itself is subject to reporting, but the contents of the account do not have to
be separately reported
Foreign stock or securities not held in a financial accountYesNo
Foreign partnership interestsYesNo
Indirect interests in foreign financial assets through an entityNoYes, if sufficient ownership or beneficial interest (i.e., a greater than 50 percent interest) in the entity
Foreign mutual fundsYesYes
Domestic mutual fund investing in foreign stocks and securitiesNoNo
Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantorYes, as to both foreign
accounts and foreign non-account investment assets
Yes, as to foreign accounts
Foreign-issued life insurance or annuity contract with a cash-valueYesYes
Foreign hedge funds and foreign private equity fundsYesNo
Foreign real estate held directlyNoNo
Foreign real estate held through a foreign entityNo, but the foreign entity
itself is a specified foreign financial asset and its maximum value includes the value of the real estate
No
Foreign currency held directlyNoNo
Precious Metals held directlyNoNo
Personal property, held directly, such as art, antiques, jewelry, cars
and other collectibles
NoNo
‘Social Security’- type program benefits provided by a foreign
government
NoNo

Quick Guide to FBAR Non-Compliance Penalties

VIOLATIONCIVIL PENALTIESCRIMINAL PENALTIESCOMMENTS
Negligent ViolationUp to $500N/A31 U.S.C.
§5321(a)(6)(A)
31 C.F.R. 103.57(h)
Non-willful ViolationUp to $10,000 for each negligent violationN/A31 U.S.C. §5321(a)(5)(B)
Pattern of Negligent
Activity
In addition to penalties
under §5321(a)(6)(A)
with respect to such
violationes, not more
than $50,000
N/A1 U.S.C. 5321(a)(6)(B)
Willful Failure to File FBAR or retain records of accountsUp to the greater of $100,000, or 50% of the
amount in the account
at the time of the violation.
Up to $250,000 or 5
years, or both
31 U.S.C. §5321(a)(5)(C)
31 U.S.C. §5322(a)
31 C.F.R. §103.59(b) for
criminal.
The penalty applies to all U.S. persons.
Willful Failure to File FBAR or retain records of
accounts while violating certain other laws
Up to the greater of $100,000, or 50% of the
amount in the account at the time of the violation.
Up to $500,000 or 10
years, or both
31 U.S.C. §5322(b)
31 C.F.R. §103.59(c) for
criminal.
The penalty applies to all U.S. persons.
Knowingly and Willfully Filing a False FBARUp to the greater of
$100,000, or 50% of the
amount in the account
at the time of the violation.
Up to $10,000 or 5
years, or both
18 U.S.C. §1001
31 C.F.R. §103.59(d) for
criminal.
The penalty applies to all U.S. persons.

Civil and Criminal Penalties may be imposed together. 31 U.S.C. §5321(d).
It should be noted that the penalties are assessed per account and not per FBAR

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