It is estimated that last year, around 1.35 million plus taxpayers filled FBAR and around half a million filed FATCA reports.
The US State department estimates that around 9 Million US Citizens live outside the US – More than a million in Mexico, and about 750K in Canada alone. Millions other live in the US but hold assets overseas. If you earn income outside the US, then the IRS wants a piece of that action. US laws mandate that that if you are a US citizen or resident, then you have to report your global income in the US and pay any applicable taxes.
Filing requirement include a disclosure report called FBAR and taxpayers whose assets exceed a certain threshold have to file a statement of assets – FATCA, which is filed along with the Income tax return.
What is FBAR?
FBAR stands for “Report of Foreign Bank and Financial Accounts”
If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding $10,000, the Bank Secrecy Act requires you to report the account(s) yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114.
Who Must File an FBAR?
United States persons are required to file an FBAR if:
- You have a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
United States person includes U.S. citizens, U.S. residents, entities, including corporations, partnerships, or limited liability companies, created in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.
Financial account includes the following types of accounts:
- Bank accounts such as savings accounts, checking accounts, and time deposits,
- Securities accounts such as brokerage accounts and securities or other financial instruments
- Commodity futures or options accounts
- Insurance policies with a cash value (such as a whole life insurance policy),
- Mutual funds or similar pooled funds
When do I file a FBAR?
A person who holds a foreign financial account may have a reporting obligation even when the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.
The FBAR is a calendar year report and must be filed on or before April 15 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System.
Unlike FATCA, the FBAR (FinCEN Form 114) is not filed with the IRS. It must be filed directly with the office of Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, separate from the IRS.
What then is 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 (FATCA) , which is filed with the income tax return. Those foreign financial assets could include foreign accounts reported on an FBAR. The Form 8938 filing requirement is in addition to the FBAR filing requirement.
Who has to file FATCA?
If you are single or file separately from your spouse, you must submit a Form 8938 if you have more than $50,000 in assets and you live in the United States, or you have more than $200,000 of foreign financial assets at the end of the year and you live abroad.
If you file jointly with your spouse, these thresholds double- $100,000 of assets if you live in the US and $400,000 if you live overseas. You are considered to live abroad if you are a U.S. citizen whose tax home is in a foreign country and you have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period
Non-Compliance with Form 8938 Reporting Requirements
If you must file Form 8938 and do not do so, you may be subject to penalties: a $10,000 failure to file penalty, an additional penalty of up to $50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.
Form 8938 Does Not Relieve Filers of FBAR Filing Requirements
Has anyone been convicted for failing to meet the filing requirements?
On May 9, 2016 Justice department announced that Gregg Mulholland, a dual US and Canadian citizen was the first person to be prosecuted for violating reporting requirements under FATCA. Recently in Feb 2018, Special prosecutor Robert Mueller announced that Paul Manaford and Rick Gates have been charged with failure to file FBAR. Well these are extreme cases and do have criminal charges filed as well.
I have global assets but was not aware of this requirement and have not filed a FBAR or FATCA. What should I do?
Filing of foreign assets disclosure and reporting of global income are federal requirements. Foreign banks have started reporting to IRS on assets held in their banks by US Citizens. This is a serious matter. If you meet the thresholds and have not filed , do not ignore the issue but contact a tax professional and seek professional advice. Get into compliance.
For more information on Tax laws for 2018 read Will you save on taxes in 2018.
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