New rules on financial reporting from the FACTA will affect U.S. expats. FBAR apply to all U.S. tax payers with a foreign account amounting over $10,000. If you’re an expat who hasn’t been filing returns and FBARs, this could affect you. Find out what the rules are, and how they may impact your taxes. For personal FATCA guidance, FBAR instructions, and expat tax advice, contact me.
FBAR Filing deadline – Same as your tax return April 15 (June 15 for expats)
Form 8938 – April 15 (June 15 for expats)
FBAR – Report of Foreign Bank and Financial Accounts
You must file an FBAR if both of these are true:
- You’re a U.S. taxpayer.
- You own or control foreign bank and financial accounts with a combined value over $10,000.
File the FBAR separately from your tax return. The United States must receive it by April 15 (June 15 for expats). The reporting requirement covers many types of foreign accounts maintained outside of the United States, including:
- Bank accounts
- Securities accounts
- Certain foreign retirement arrangements
Who should file an FBAR
You’re probably required to file an FBAR if you’re:
- A U.S. citizen or resident living abroad
- Using foreign accounts for everyday activities
While this requirement isn’t new, expats and their tax advisors often overlooked it in the past. Recent international enforcement efforts have raised awareness of the requirement. Now, all expats should be certain they’re compliant.
This is only an informational document. No additional tax is going to be added. However, severe penalties can be levied against taxpayers who fail to file or file late. So, it’s important to work with an expat tax advisor who understands your obligations.
Penalties if you faile to file an FBAR
A $10,000-per-year penalty can apply even if your failure to file an FBAR is an oversight. If the IRS can show you purposely avoided the FBAR reporting obligations, the penalties can be as high as:
- $100,000, or
- 50% of the greatest value of the account
Taxpayers who intentionally avoid FBAR reporting can face criminal charges.
FBAR penalties can only be waived if the taxpayer shows reasonable cause for failing to file. Reasonable cause findings rely on a great number of facts. The IRS decides reasonable cause. So, even expats living abroad who’ve been compliant with local tax obligations can be out of compliance with the FBAR requirements. These factors are taken into account by the IRS when analyzing whether a taxpayer acted reasonably:
- Background and education
- Whether there was a tax deficiency related to the unreported foreign account
- Failure to disclose the existence of the account to tax professionals
If you haven’t filed required FBAR reports in prior years, you should act quickly. Consult 1040 Abroad.
FATCA – Foreign Account Tax Compliance Act
Foreign Account Tax Compliance Act (FATCA) is a product of United States’ efforts to combat offshore tax evasion. U.S. expats of all income levels with foreign accounts and assets need to be conscious of its impact. FATCA brings about two notable changes that affect all expats:
- U.S. taxpayers with foreign accounts and assets might need to file Form 8938: Statement of Specified Foreign Financial Assets with their returns.
- Financial institutions must report information about U.S. citizens who have accounts with the institutions.
Due date to file Form 8938 (same as an FBAR in many ways)
File Form 8938 with your return. It was first required in 2011. You must file Form 8938 each year it applies to you. Form 8938 is the same as an FBAR in many ways. However, it requires you to disclose certain “nonaccount” assets like:
- Business and trust ownership
- Certain contractual investments with foreign parties
You must file form 8938 if the value of your reportable foreign assets exceeds either of these levels:
- More than $50,000 — $100,000 if married filing jointly — at the end of the year
- $75,000 — $150,000 if married filing jointly — at any time in the year
Expats living abroad all year have an increased reporting threshold. They don’t need to complete this form unless their foreign assets are valued in excess of either:
- $200,000 — $400,000 if married filing jointly — at the end of the year
- $300,000 — $600,000 if married filing jointly — at any time during the year
Financial institution reporting
New rules on financial reporting will affect expats. However, the effects will be indirect. Some foreign financial institutions must report on U.S. citizen and resident clients who have accounts worth more than $50,000. If you’re an expat who hasn’t been filing returns and FBARs, this could affect you. Ex: The foreign banks you use might be required to obtain additional information about you. They would report this information to the U.S. government. The IRS could figure out you’re not in compliance before you report yourself. In that case, many of the preferential disclosure options will be unavailable to you. You might face additional tax, penalties, and interest.