Taxpayers with foreign bank accounts May Have to File FBAR and FATCA

Do you have a foreign bank account? Was the balance in your financial account(s) greater than $10,000 in total at any time during the calendar year? If the answer is yes to both, a U.S. taxpayer must file a Foreign Bank Account Report (FBAR). FBAR refers to FinCEN Report 114. FinCEN is an acronym for Financial Crimes Enforcement Network.

A U.S. taxpayer (residing in the U.S. or overseas) includes a United States citizen, Legal Permanent Resident (Green Card holder), or a U.S. visa holder who meets the Substantial Presence Test.

FBAR reporting is required if the aggregate value of the US person’s foreign financial accounts exceeds US$10,000 at any time during the calendar year. Foreign accounts may include Savings and checking accounts, brokerage accounts, Mutual funds, and so on.

If you have a very high balance in your foreign account, you must also file IRS Form 8938, “Statement of Specified Foreign Financial Assets” under the Foreign Account Tax Compliance Act (FATCA).

Individuals residing in the United States are required to file Form 8938 if the market value of their foreign financial assets is greater than $50,000 on the last day of the year or greater than $75,000 at any time during the year. Individuals residing outside the United States (and satisfying either the bona fide resident or physical presence tests) are required to file Form 8938 if the market value of their foreign financial assets is greater than $200,000 on last day of the year or greater than $300,000 at any time during the year.

You may have to file both FBAR and FATCA Form 8938.

Taxpayers with a Form 8938 filing obligation need to attach this form to their annual individual income tax return (Form 1040). Taxpayers who do not have to file an income tax return for the tax year with the IRS do not have to file Form 8938, regardless of the value of their specified foreign financial assets.

Unlike Form 8938, the FBAR (FinCEN Form 114) is not filed with the IRS.

The filing deadline for the Foreign Bank Account Report (FBAR) has changed! To ensure U.S. taxpayers pay income taxes on their worldwide income, the Financial Crimes Enforcement Network (FinCEN) developed the FBAR. In the past, this form was due on June 30, but starting 2016 calendar year, the form will be due by the due date of the federal income tax return – April 15. Those who don’t meet the April 15 due date must file by October 15, the automatically extended due date for the FBAR. They don’t need to request the extension. If they don’t have all their information to file by the extended due date, they should file as complete a report as possible by October 15 and later amend the report when they have more information.

The threshold for the filing requirement is for a U.S. taxpayer with the aggregate value of all foreign account balances (Bank accounts, Savings accounts, Investment accounts, Securities accounts, Mutual Funds, Foreign Trusts, Foreign Retirement Plans, Foreign Business and/or Corporate Accounts, Foreign-issued life insurance or annuity contracts with cash value, Foreign Accounts held in a Controlled Foreign Corporation, or Foreign Accounts held in a Passive Foreign Investment Company) that exceed $10,000 at any point of time during the calendar year. Once your foreign accounts exceed $10,000 in total, you must report all of the foreign accounts.

Jointly-owned accounts. If two people jointly own a foreign financial account, or if several people each own a partial interest in an account, then each person has a financial interest in that account, and each person must report the entire value of the account on an FBAR.

Exception for Spouses. Spouses don’t need to file separate FBARs if they complete and sign Form 114a, Record of Authorization to Electronically File FBARs (PDF), and:

  1. All reportable financial accounts of the nonfiling spouse are jointly owned with the filing spouse, and
  2. The filing spouse reports all accounts jointly-owned with the nonfiling spouse on a timely-filed FBAR.

Otherwise, both spouses must file separate FBARs, and each spouse must report the entire value of the jointly-owned accounts.

The e-filing system will not allow both spouses’ signatures on the same electronic form – only the filing spouse signs in the system. Taxpayers don’t submit Form 114a with the FBAR; they keep it for their records.

Children. Generally, a child is responsible for filing their own FBAR. If a child can’t file their own FBAR for any reason, such as age, the child’s parent or guardian must file it for them. If the child can’t sign their FBAR, a parent or guardian must sign it.

The FBAR is filed every year to the US Treasury Department via FinCEN (not to the IRS). The FBAR does not generate any additional tax — it simply exists as a reporting requirement. This “Disclosure” prevents the hiding of foreign assets and income as a way to avoid US income tax. Failure to file the FBAR can result in significant civil and/or criminal penalties.

If you were liable to file FBARs but you did not know you had to, you may qualify for the IRS voluntary disclosure program called the Streamlined Procedure, which is penalty free.

Individuals don’t need to report foreign financial accounts held in individual retirement accounts (described in Internal Revenue Code Sections 408 and 408A) and tax-qualified retirement plans (described in IRC Sections 401(a), 403(a) or 403(b)) on the FBAR. The FBAR instructions (PDF) list other exceptions.

FBAR filers need to reasonably figure and report the greatest value of currency or non-monetary assets in their accounts during the calendar year. They may rely on their periodic account statements if the statements fairly show the greatest account value during the year.

Filers figure the greatest value in the currency of the account. If not already in U.S. dollars, they convert that value into U.S. dollars using the Treasury Bureau of the Fiscal Service exchange rate on the last day of the calendar year. If the Treasury Bureau of the Fiscal Service rate isn’t available, they may use another valid exchange rate and give the source of the rate. For example, the value of an account located in Japan may be shown on the account statements in Japanese yen. Filers would figure the greatest value of the account in yen and then convert it into U.S. dollars.

The IRS FBAR Reference Guide (PDF) has other examples of how to report account value. The Financial Crimes Enforcement Network (FinCEN) website has steps for Reporting Maximum Account Value.

Have more questions about FBAR requirements?  The IRS Web site should help you, but you can also consult SRJ Consulting (www.srjtax.com) if you need FBAR filing services.

The penalties for not following mandatory FBAR regulations can be severe. If the failure to file isn’t willful, the penalty can reach $10,000, unless it was due to reasonable cause.

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