With the massive US initiative to uncover tax cheats hiding assets in offshore accounts, it is more critical than ever to report your foreign assets as required. While in the past US expats have experienced leniency with filing such documents, there is a decided effort to crack down on delinquent filers and it is recommended that you stay compliant with all reporting requirements. Two of the major initiatives, FBAR and FATCA, are ones you should pay close attention to.
FBAR (Foreign Bank Account Report)
The requirements for filing FBAR are simple: If you have $10,000 or more in foreign accounts during the tax year, you must file FBAR. This is an aggregate balance, meaning, if you have three separate accounts and together the balances equal $10,000 or greater, you must file. In addition, remember that even if your accounts hit $10,000 for one day (or one hour!), it will trigger an FBAR filing requirement.
Previously FBAR was filed via Form TD 90.22-1, which was mailed to the Department of the Treasury. As of July, 2013, all FBARs are now filed electronically on the BSA E-Filing System via FinCEN Form 114. If you have a tax preparer file the FBAR on your behalf, you’ll also both need to sign FinCEN Form 114a. This document does not need to be filed with your FBAR, but must be retained for your records in case the IRS requests it.
Who must file FBAR?
US persons, which includes US citizens, resident aliens, trusts, estates, and domestic entities, that have an interest in foreign financial accounts and meet the reporting threshold must file. Below we define what it means to have a financial interest in an account:
Financial 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 are the penalties for failing to file?
If the failure to file is non-willful, up to $10,000 per violation. However if it is determined that your failure to file was willful, the penalties are up to the greater of $100,000 or 50 percent of account balances. In addition, criminal penalties may also apply, which is why it is so important to stay compliant with FBAR filings if required.
FATCA (Foreign Account Tax Compliance Act)
FATCA is yet another piece of the initiative to lure tax evaders out of hiding. US citizens living abroad must file FATCA Form 8938 if their foreign assets exceed the reporting thresholds below:
· Value of your assets is $200,000 on the last day of the tax year or more than $300,000 at any time during the year (filing single)
· Value of your assets is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year (filing married jointly)
Note that lower thresholds apply for US residents.
You must report the maximum value of specified foreign assets, which include financial accounts with foreign financial institutions and certain other foreign non-account investment assets. Some foreign pensions may be included in this so be sure to know how your foreign pension might be treated.
You must report your assets in US dollars so you will need to convert foreign currency in order to determine, and report, your foreign assets on Form 8938.
How do I file Form 8938?
Unlike the FBAR, Form 8938 is filed right along with your US tax return. If you request an extension on your US tax return, the extension applies to Form 8938 as well.
Penalties for failing to file Form 8938 are up to $10,000 for each failure to disclose and an additional $10,000 for each 30 days of non-filing after receipt of an IRS notification to do so. The maximum penalty is $60,000, however criminal penalties are possible if the IRS determines that your delinquency was deliberate.
FBAR vs FATCA Comparison
This chart provides an excellent comparison of FBAR vs FATCA reporting requirements, including specific details on the types of foreign assets that are reportable on Form 8938.
If you have questions about whether or not you should be reporting FATCA or FBAR, we encourage you to contact an expat tax professional. As noted above, failure to file when required can result in steep penalties so it is important to remain compliant!
This post was written by David McKeegan, co-founder of Greenback Expat Tax Services. Greenback specializes in the preparation of US expat taxes for Americans living abroad. Greenback offers straightforward pricing, a simple, hassle-free process, and CPAs and IRS Enrolled Agents who have extensive experience in the field of expat tax preparation. If you’d like Greenback to file your FBAR or your US expat tax return, simply click here to get started.