What is FBAR
FBAR is a report of foreign bank accounts and its sole purpose is to collect data on the balances of foreign bank accounts.
Who Has to File an FBAR
- If you have had $10,000 or more in a foreign bank account, brokerage account, mutual fund, trust or other type of foreign financial account, at any point during the year (even one day) you must file FBAR.This is a cumulative balance—meaning, if you had a total of $10,000 or more in several bank accounts, you must file.
- Also, if you have signing authority over such an account, FBAR must be filed.
- While this affects the majority of expats because they live overseas, US residents are also required to file if they hold qualifying offshore accounts.
How to File
The FBAR is sent electronically to the US Treasury Department via FinCEN Form 114—it is separate from your US Federal Tax Return. FinCEN Report 114 and is only available online through the BSA E-Filing System website. The e-filing system allows the filer to enter the calendar year reported, including past years, on the online FinCEN Report 114. It also offers filers an option to “explain a late filing” or to select “Other” and enter up to 750-characters within a text box to provide a further explanation of the late filing or to indicate whether the filing is made in conjunction with an IRS compliance program.
When to File
The filing deadline is June 30th and unlike your US tax return, you cannot file for an extension. Penalties for failure to file can be steep so it is important to meet that deadline if you are required to file.
Changes to the Filing Deadline
For returns to be filed after December 31st, 2015, that is the beginning with 2016 calendar year reports, which are due in 2017, the following apply;
- Deadline for the FBAR changed from June 30th to the April 15th, which is the due date for an individual who is resident in the United States. In addition to this, the FBAR can be extended for a period of six months ending October 15th, just as an Individual tax return.
- For those who are not resident in the United States and have to file a US tax return, there is an automatic 2 month extension until June 15th. This extension is available to their FBAR filing as well.
- For those who are filing an FBAR for the first time, the Act specifically states that, “For any taxpayer required to file [an FBAR] for the first time, any penalty for failure to timely request for, or file, an extension, may be waived by the Secretary.”
Exceptions to Reporting
Exceptions to the FBAR reporting requirements can be found in the FBAR instructions. There are filing exceptions for the following United States persons or foreign financial accounts:
- Certain foreign financial accounts jointly owned by spouses
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts
- Foreign financial accounts owned by a governmental entity
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRAs
- Participants in and beneficiaries of tax-qualified retirement plans
- Certain individuals with signature authority over, but no financial interest in, a foreign financial account
- Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
- Foreign financial accounts maintained on a United States military banking facility.
Offshore Voluntary Disclosure Program
On January 9, 2012, the IRS reopened its Offshore Voluntary Disclosure Program following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets an opportunity to fulfill their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at any time.
Streamlined Filing Compliance Procedures
On September 1, 2012, the IRS implemented new streamlined filing compliance procedures that were available only to non-resident U.S. taxpayers who failed to file required U.S. income tax returns. Taxpayer submissions were subject to different degrees of review based on the amount of tax due and the taxpayer’s response to a risk questionnaire.
On June 18, 2014, the IRS announced the expansion of these procedures. The expanded procedures are available to a wider population of U.S. taxpayers living outside the country and, for the first time, certain U.S. taxpayers residing in the United States; reference IR-2014-73. For eligible U.S. taxpayers residing outside the United States, all penalties will be waived. For eligible U.S. taxpayers residing in the United States, the only penalty will be a miscellaneous offshore penalty equal to five percent of the foreign financial assets that gave rise to the tax compliance issue. For more information, go to Streamlined Filing Compliance Procedures.
Delinquent FBAR Submission Procedures
Taxpayers who have not filed a required FBAR and are not under a civil examination or a criminal investigation by the IRS, and have not already been contacted by the IRS about a delinquent FBAR, should file any delinquent FBARs according to the FBAR instructions and include a statement explaining why the filing is late. All FBARs are required to be filed electronically through FinCEN’sBSA E-Filing System. Select a reason for filing late on the cover page of the electronic form or enter a customized explanation using the ‘Other’ option. If unable to file electronically you may contact FinCEN’s Regulatory Helpline at 800-949-2732 or 703-905-3975 (if calling from outside the United States) to determine acceptable alternatives to electronic filing.
The IRS will not impose a penalty for the failure to file the delinquent FBARs if income from the foreign financial accounts reported on the delinquent FBARs is properly reported and taxes are paid on your U.S. tax return, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is a United States federal law requiring United States persons (including those living outside the U.S.) to have yearly reported themselves and their non-U.S.financial accounts to the Financial Crimes Enforcement Network (FINCEN), and requires all non-US (Foreign) Financial Institutions (FFI’s) to search their records for suspected US persons for reporting their assets and identities to the US Treasury.
FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts
FATCA focuses on reporting:
- By U.S. taxpayers about certain foreign financial accounts and offshore assets
- By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest
The objective of FATCA is the reporting of foreign financial assets; withholding is the cost of not reporting.
FATCA filing requirements are a bit more confusing than FBAR filing requirements. While FBAR looks for bank account information alone, under FATCA you must report specified foreign assets (which include bank accounts) if the value exceeds the filing threshold. Specified foreign financial assets include things such as:
- Foreign pensions
- Foreign stockholdings
- Foreign partnership interests
- Foreign financial accounts
The reporting thresholds are different for taxpayers residing in the US than they are for those living abroad. Thresholds for those residing in US:
• Single filer: Total value of assets was $50,000 or more at the end of the tax year, or $75,000 at any point during the year
• Married filer: Total value of assets was $100,000 or more at the end of the tax year, or $150,000 at any point during the year
Thresholds for those residing outside the US:
- Single filer: Total value of assets was $200,000 or more at the end of the tax year, or $300,000 at any point during the year
- Married filer: Total value of assets was $400,000 or more at the end of the tax year, or $600,000 at any point during the year
When to File
FATCA Form 8938 is filed along with your US tax return to the IRS, so if you request an extension till October 15th on your tax return, this applies to Form 8938 as well.
One note: if you aren’t required to file a tax return in any given year (i.e. you didn’t meet the filing threshold), you are not required to file Form 8938, regardless of the value of your specified foreign assets.
Filing Clarification – FBAR or FATCA?
FBAR and FATCA may be similar in design and purpose, but you very well may be required to file one or the other—or both. Or neither! Simply because you do not need to file Form 8938, does not necessarily mean that you don’t need to file FBAR (and vice versa). You must look at the requirements of both initiatives and determine how, or if, you have a filing obligation