Who Must File a FBAR
United States persons are required to file a FBAR by June 30th of the year immediately following the calendar year being reported (extensions are not granted) if:
- They had 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
A United States person includes:
- U.S. citizens and residents
- U.S. entities including, but not limited to, corporations, partnerships, or limited liability companies created or organized in the United States or under the laws of the United States; and
- Trusts or estates formed under the laws of the United States
Exceptions to the Reporting Requirement
There are filing exceptions for the following U.S. persons or foreign financial accounts:
- Certain foreign financial accounts jointly owned by spouses (separate FBAR’s for each spouse are not required)
- United States persons included in a consolidated FBAR
- Correspondent/Nostro accounts used solely for bank-to-bank settlements
- Foreign financial accounts owned by a governmental entity, including colleges universities that are agencies thereof, as well as government employee retirement or welfare benefit plans
- Foreign financial accounts owned by an international financial institution
- Owners and beneficiaries of U.S. IRA’s are not required to report a foreign account held in the IRA
- Participants in and beneficiaries of tax-qualified retirement plans
- Domestic mutual fund investments in foreign stocks and securities
- 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 a FBAR filed on behalf of the trust)
- Foreign financial accounts maintained in a United States military banking facility
FATCA Requirements
FATCA addresses tax non-compliance by U.S. taxpayers with foreign accounts by focusing on reporting by U.S. taxpayers and foreign financial institutions.
In general, federal law requires U.S. citizens and resident aliens to report all worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers are required to complete and attach Schedule B, D or E to their income tax returns. Part III of Schedule B inquires about the existence of foreign accounts, such as bank and securities accounts, and generally requires U.S. citizens to report the country in which each account is located.
U.S. citizens, resident aliens, and certain non-resident aliens must also report specified foreign financial assets on Form 8938 and include it with their tax returns (even if there is no reportable income) if the aggregate value of those assets exceeds the following thresholds:
- Taxpayers living in the U.S.
- Single and married filing separately – year end value of between $50,000 and $75,000 at any time during the year
- Married filing jointly – year end value between $100,000 and $150,000 at any time during the year
- Taxpayers living abroad
- Single and married filing separately – year end value between $200,000 and $300,000 at any time during the year
- Married filing jointly – year end value between $400,000 and $600,000 at any time during the year
Stiff Penalties for Non-Compliance
FBAR
If your failure is deemed to be non-willful, then the Treasury can impose a penalty of $10,000 a year for every year you did not file or omitted an account from your filing, up to 6 years.
Fines can be staggering if the Treasury determines that your failure to file or disclose overseas accounts is willful. In that case, you may be assessed a civil penalty of the greater of 50% of the value of your aggregate foreign accounts, or $100,000, for each year (6 year maximum) you did not file a FBAR Form 114 or include the account thereon.
Criminal penalties for a willful FBAR violation may also be assessed and include a fine of up to $250,000 and/or 5 years of imprisonment and are doubled if it occurs while breaking another law, such as tax law, as it often will.
FATCA
If you are required to file Form 8938 and do not do so, or omit an account, the IRS may assess a $10,000 penalty for each year of non-compliance up to six years. You will also be subject to a 40 percent penalty for understatement of tax attributable to income on the non-disclosed assets. Bear in mind that, in most cases, you will not receive a Form 1099 reporting your foreign income as is the case with a domestic account. The burden is on you to determine the foreign amounts to include on your tax return.
In addition, the statute of limitations is extended to six years after you file your return if you omit from gross income more than $5,000 that is attributable to a specified foreign financial asset, without regard to the reporting threshold or any reporting exceptions. If you fail to file or properly report an asset on Form 8938, the statute of limitations for the tax year is extended to three years following the time you provide the required information. If the failure is due to reasonable cause, no penalty will be imposed and the statute of limitations will be extended only with regard to the item or items related to such failure and not for the entire tax return. Reasonable cause is determined on a case-by-case basis, taking into account all relevant facts and circumstances.
Obtaining an extension to file your federal income tax returns does not extend the due date for filing a FBAR. You may not request an extension for filing the FBAR. It should also be noted that filing Form 8938 does not relieve you of your FBAR obligation. If you don’t have all the information you need to file the FBAR by June 30, you should file as complete a return as you can and later amend the FBAR when the additional or new information becomes available.
If you have accounts or holdings that may be subject to filing under the FBAR and FATCA regulations, DSJ has experts ready to assist you. Contact us at 516-541-6549.